10-K

Details about Accumulated Other
Comprehensive Income (Loss) Components

Amounts Reclassified from Accumulated
Other Comprehensive Income (Loss) to
Net Income

Affected Line Items in the Consolidated
Statements of Comprehensive Income
(Loss)

Interest rate swap contracts

Interest expense

10-K 1 d671745d10k.htm 10-K 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended December 31, 2013

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: 000-54675

CARTER VALIDUS MISSION CRITICAL REIT, INC.

(Exact name of registrant as specified in its charter)


Maryland		27-1550167
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

4211 West Boy Scout Blvd., Suite 500 Tampa, FL 33607		(813) 287-0101
(Address of Principal Executive Offices; Zip Code)		(Registrant’s Telephone Number)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
None		None

Securities registered pursuant to Section 12(g) of the Act:

(Common stock, par value $0.01 per share)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to 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. þ

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


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

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

There is no established market for the Registrant’s shares of common stock. The Registrant is currently conducting an ongoing initial public offering of its shares of common stock pursuant to a Registration Statement on Form S-11, which shares are being sold at $10.00 per share, with discounts available for certain categories of purchasers.

As of June 30, 2013, there were approximately 39,359,000 shares of common stock of Carter Validus Mission Critical REIT, Inc. outstanding held by non-affiliates, for an aggregate market value of approximately $393,590,000, assuming a market value of $10.00 per share.

As of March 14, 2014, there were approximately 96,850,000 shares of common stock of Carter Validus Mission Critical REIT, Inc. outstanding.

Documents Incorporated by Reference

Portions of Registrant’s proxy statement for the 2014 annual stockholders meeting, which is expected to be filed no later than April 30, 2014, are incorporated by reference in Part III. Items 10, 11, 12, 13 and 14.

Carter Validus Mission Critical REIT, Inc.

(A Maryland Corporation)

TABLE OF CONTENTS


		Page
PART I

Item 1.	Business		2
Item 1A.	Risk Factors		15
Item 1B.	Unresolved Staff Comments		47
Item 2.	Properties		47
Item 3.	Legal Proceedings		50
Item 4.	Mine Safety Disclosures		50

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		51
Item 6.	Selected Financial Data		56
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		57
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		77
Item 8.	Financial Statements and Supplementary Data		78
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		78
Item 9A.	Controls and Procedures		78
Item 9B.	Other Information		79

PART III

Item 10.	Directors, Executive Officers and Corporate Governance		80
Item 11.	Executive Compensation		80
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		80
Item 13.	Certain Relationships and Related Transactions, and Director Independence		80
Item 14.	Principal Accounting Fees and Services		80

PART IV

Item 15.	Exhibits and Financial Statement Schedules		81

SIGNATURES

EX-31.1
EX-31.2
EX-32.1
EX-32.2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K of Carter Validus Mission Critical REIT, Inc., other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. Such statements include, in particular, statements about our plans, strategies and prospects, and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “would,” “could,” “should,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission, or SEC. We make no representation or warranty (express or implied) about the accuracy of any such forward-looking statements contained in this Annual Report on Form 10-K, and we do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We caution investors not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Annual Report on Form 10-K. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. The forward-looking statements should be read in light of the risk factors identified in the Item 1A. Risk Factors section of this Annual Report on Form 10-K.

Part I

Item 1.

Business.

The Company

Pursuant to a Registration Statement on Form S-11 under the Securities Act, the Company is offering for sale to the public on a “best efforts” basis a maximum of 150,000,000 shares of common stock at a price of $10.00 per share, and up to 25,000,000 additional shares pursuant to a distribution reinvestment plan, or the DRIP, under which stockholders may elect to have distributions reinvested in additional shares of common stock at the higher of $9.50 per share or 95% of the fair market value per share, as determined by our board of directors, or the Offering. The Registration Statement was first declared effective by the SEC on December 10, 2010. As of March 14, 2014, we had received and accepted subscriptions in the Offering for 96,964,000 shares of our common stock (including shares of common stock issued pursuant to the DRIP), resulting in our receipt of gross proceeds of $963,696,000.

On October 11, 2013, we filed with the SEC a registration statement on Form S-11 under the Securities Act with respect to a proposed follow-on offering of up to $240,000,000 of shares of our common stock to be offered pursuant to a primary offering, and up to $10,000,000 of shares of common stock to be offered pursuant to the DRIP. We have not issued any shares in connection with the proposed follow-on offering as it has not yet been declared effective by the SEC.

Substantially all of our business is conducted through Carter/Validus Operating Partnership, LP, or the Operating Partnership, a Delaware limited partnership, formed on December 29, 2009. The Company is the sole general partner of the Operating Partnership and Carter/Validus Advisors, LLC, or the Advisor, is the initial limited partner of the Operating Partnership. The Advisor is managed by, and is a subsidiary of, Carter/Validus REIT Investment Management Company, LLC, or the Sponsor.

The Advisor acts as our advisor pursuant to an advisory agreement, as amended. Our Advisor is responsible for managing our affairs on a day-to-day basis, identifying and making acquisitions and investments on our behalf and making recommendations as to dispositions of assets. Our board of directors exercises its fiduciary duties in reviewing these recommendations and determining to approve or reject proposed transactions. Our Advisor also provides asset management, marketing, investor relations and other administrative services on our behalf. We have no employees and rely upon our Advisor to provide substantially all of our services.

Carter Validus Real Estate Management Services, LLC, or the Property Manager, a wholly owned subsidiary of the Sponsor, serves as our Property Manager. The Property Manager and SC Distributors, LLC, the affiliated dealer-manager of the Offering, or the Dealer Manager, receive compensation and fees for services related to the Offering and for the investment and management of our assets. These entities will receive fees during the offering, acquisition, operational and liquidation stages of the Offering.

Except as the context otherwise requires, “we,” “our,” “us,” and the “Company” refer to Carter Validus Mission Critical REIT, Inc., the Operating Partnership and all consolidated subsidiaries.

Key Developments during 2013 and 2014

•

During the year ended December 31, 2013, we acquired 17 properties for an aggregate purchase price of $548,587,000, consisting of 1.9 million gross rental square feet of commercial space.

•

During the year ended December 31, 2013, we invested approximately $73,766,000 in real estate-related notes receivables, of which $44,300,000 was repaid.

•

As of December 31, 2013, we had paid aggregate distributions, since inception, of approximately $32,836,000 ($17,604,000 in cash and $15,232,000 reinvested in shares of common stock pursuant to the DRIP). Additionally, as of March 14, 2014, we had paid aggregate distributions of approximately $46,076,000 ($24,318,000 in cash and $21,758,000 reinvested in shares of common stock pursuant to the DRIP).

•

On August 9, 2013, we increased our secured credit facility with KeyBank National Association, or the KeyBank Credit Facility, to increase the maximum commitments available thereunder from $110,000,000 to an aggregate of up to $225,000,000, consisting of a $170,000,000 revolving line of credit and $55,000,000 in term loans. The KeyBank Credit Facility can be increased to $350,000,000. As of March 14, 2014, we had $55,000,000 outstanding under the KeyBank Credit Facility.

•

As of March 14, 2014, we owned, through separate wholly-owned subsidiaries or through a consolidated partnership, a portfolio of 34 properties, located in 25 MSAs and comprising an aggregate of 3.4 million gross rental square feet of commercial space. As of March 14, 2014, all of our properties were 100% leased.

Our principal executive offices are located at 4211 West Boy Scout Blvd., Suite 500, Tampa, Florida 33607. Our telephone number is (813) 287-0101.

Investment Objectives and Policies

Our primary investment objectives are to:

•

acquire well-maintained and well-located, or quality, commercial real estate properties with a focus on the data center and medical sectors, which provide current cash flows from operations;

•

pay regular cash distributions to stockholders;

•

preserve, protect and return capital contributions to stockholders;

•

realize appreciated growth in the value of our investments upon the sale of such investments; and

•

be prudent, patient and deliberate with respect to the purchase and sale of our investments considering current and future real estate markets.

We cannot assure stockholders that we will be able to continue to attain these objectives or our assets will not decrease. Our board of directors may revise our investment policies if it determines it is advisable and in the best interest of our stockholders. During the term of the advisory agreement, decisions relating to the purchase or sale of investments will be made by our Advisor, subject to the oversight and approval of our board of directors.

Investment Strategy

Primary Investment Focus

There is no limitation on the number, size or type of properties we may acquire or the percentage of net proceeds of the Offering that may be invested in a single investment. We focus our investment activities on acquiring strategically located, well-constructed income-producing commercial real estate predominantly in the data center and medical sectors located throughout the continental United States, preferably with long-term net leases to investment grade and other creditworthy tenants, and originating or acquiring real estate debt backed by similar income-producing commercial real estate predominantly in such sectors. The real estate debt we originate

or acquire may include first mortgage debt, bridge loans, mezzanine loans or preferred equity. While we intend to have a balanced portfolio between the various property types at the end of our primary acquisition period, we may not have a balanced portfolio at any particular time. We may also invest in real estate-related debt and securities that meet our investment strategy and return criteria. The size of individual properties we purchase varies significantly, but we expect most of the properties we acquire in the future to continue to have a purchase price between $10 million and $150 million. The number and mix of properties and other real estate-related investments comprising our portfolio will depend upon real estate market conditions and other circumstances existing at the time we acquire the properties and other real estate-related investments, and the amount of proceeds raised in the Offering.

Investing in Real Property

Our Advisor uses the following criteria to evaluate potential investment opportunities:

•

“mission critical” (as defined below) to the business operations of the tenant;

•

leased to investment grade and other creditworthy tenants, preferably on a net-leased basis;

•

long-term leases, preferably with terms of ten years or longer, which may include annual or periodic fixed rental increases; and

•

located in geographically diverse, established markets with superior access and visibility.

We consider “mission critical” properties as those properties that are essential to the successful operations of the companies within the industries in which such companies operate.

When and as determined appropriate by our Advisor, we may acquire properties in various stages of development or that require substantial refurbishment or renovation. Our Advisor will make this determination based upon a variety of factors, including the available risk-adjusted returns for such properties when compared with other available properties, the effect such properties would have on the diversification of our portfolio, and our investment objectives of realizing both current income and capital appreciation upon the sale of such properties.

To the extent feasible, we seek to achieve a well-balanced portfolio diversified by geographic location within the United States, age and lease maturities of the various properties in our portfolio. We also focus on acquiring properties in multiple high growth sectors, that is, the data center and medical property sectors. Tenants of our properties are generally diversified between national, regional and local companies. We generally target properties with lease terms of 10 years or longer. We acquired and may continue to acquire, properties with shorter lease terms if the property is in an attractive location, is difficult to replace, or has other significant favorable attributes. We expect that these investments will provide long-term value by virtue of their size, location, quality and condition, and lease characteristics.

Many data center and medical companies currently are entering into sale-leaseback transactions (as described below) as a strategy for applying capital to their core operating businesses that would otherwise be invested in their real estate holdings. We believe that our investment strategy will enable us to take advantage of this trend and companies’ increased emphasis on core business operations and competence in today’s competitive corporate environment as many of these companies attempt to divest of their real estate assets.

We incurred, and intend to continue to incur, debt to acquire properties when our board of directors determines that incurring such debt is in our best interest. In addition, from time to time, we may acquire some properties without financing and later incur mortgage debt secured by one or more of such properties if favorable financing terms are available. There is no limitation on the amount we may borrow against any single improved property. Pursuant to our charter, we are required to limit our aggregate borrowings to 75% of the greater of cost (or 300% of net assets) (before deducting depreciation or other non-cash reserves) or fair market value of our gross assets, unless excess borrowing is approved by a majority of the independent directors and disclosed to

stockholders in our next quarterly report along with the justification for such excess borrowing. Our board of directors has adopted a policy to further limit our aggregate borrowings, following completion of the Offering, to 50% of the greater of cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets, unless borrowing a greater amount is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following any such borrowing along with justification for borrowing such greater amount; provided, however, that this policy limitation does not apply to individual real estate assets or investments.

Creditworthy Tenants

In evaluating potential property acquisitions, we apply credit underwriting criteria to the existing tenants of such properties. Similarly, we will apply credit underwriting criteria to possible new tenants when we are re-leasing properties in our portfolio. We expect many of the tenants of our properties to be creditworthy national or regional companies with high net worth and high operating income.

A tenant is considered creditworthy if it has a financial profile that our Advisor believes meets our investment objectives. In evaluating the creditworthiness of a tenant or prospective tenant, our Advisor will not use specific quantifiable standards, but will consider many factors, including, but not limited to, the proposed terms of the property acquisition, the financial condition of the tenant and/or guarantor, the operating history of the property with the tenant, the tenant’s market share and track record within its industry segment, the general health and outlook of the tenant’s industry segment, and the lease length and the terms at the time of the property acquisition.

A tenant also is considered creditworthy when the tenant has an “investment grade” debt rating by Moody’s of Baa3 or better or credit rating by Standard & Poor’s of BBB- or better, or its payments are guaranteed by a company with such a rating. Changes in tenant credit ratings, coupled with acquisition and disposition activity, may change our concentration of creditworthy tenants from time to time.

Description of Leases

We acquire properties with existing tenant leases. When spaces in a property become vacant, existing leases expire, or we acquire properties under development or requiring substantial refurbishment or renovation, we anticipate entering into net leases. Net leases typically require tenants to pay all or a majority of the operating expenses, including real estate taxes, special assessments and sales and use taxes, utilities, insurance and building repairs related to the property, in addition to the lease payments. There are various forms of net leases, most typically classified as triple net or double net. Triple net leases typically require the tenant to pay all costs associated with a property, including real estate taxes, insurance, utilities and common area maintenance charges in addition to the base rent. Double net leases typically require the tenant to pay all the costs as triple net leases, but hold the landlord responsible for the roof and structure, or other aspects of the property. Generally, the leases require each tenant to procure, at its own expense, commercial general liability insurance, as well as property insurance covering the building for the full replacement value and naming the ownership entity and the lender, if applicable, as the additional insured on the policy. As a precautionary measure, we may obtain, to the extent available, secondary liability insurance, as well as loss of rents insurance that covers one year of annual rent in the event of a rental loss. Tenants will be required to provide proof of insurance by furnishing a certificate of insurance to our Advisor on an annual basis. With respect to multi-tenant properties, we expect to have a variety of lease partnerships with the tenants of these properties. Since each lease is an individually negotiated contract between two or more parties, each lease will have different obligations of both the landlord and tenant. Many large national tenants have standard lease forms that generally do not vary from property to property. We will have limited ability to revise the terms of leases to those tenants. We expect that office space will be subject to “gross” leases. “Gross” leases typically require the tenant to pay a flat rental amount and require us to pay for all property charges regularly associated with ownership of the property.

A majority of our acquisitions generally have lease terms of ten years or longer at the time of the property acquisition. We have acquired and may continue to acquire properties under which the lease term is in progress and has a partial term remaining. We also may acquire properties with shorter lease terms if the property is in an attractive location, difficult to replace, or has other significant favorable real estate attributes. Under most commercial leases, tenants are obligated to pay a predetermined annual base rent. Some of the leases also will contain provisions that increase the amount of base rent payable at certain points during the lease term. In general, we will not permit leases to be assigned or subleased without our prior written consent. If we do not consent to an assignment or sublease, generally the original tenant will remain fully liable under the lease, unless we release that tenant from its obligations under the lease.

We have and may continue to enter into sale-leaseback transactions. A sale-leaseback is when a property is purchased from a seller and leased back to such seller. While we will use our best efforts to structure any such sale-leaseback transactions so that the lease will be characterized as a “true lease” and so that we will be treated as the owner of the property for U.S. federal income tax purposes, the Internal Revenue Service could challenge this characterization. In the event that any sale-leaseback transaction is re-characterized as a financing transaction for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed.

Investment Decisions

Our Advisor may purchase on our account, without the specific prior approval of our board of directors, properties with a purchase price of less than $15,000,000, so long as the investment in the property would not, if consummated, conflict with our investment guidelines or any restrictions on indebtedness and the consideration to be paid for such properties does not exceed the fair market value of such properties. When the purchase price is equal to or greater than $15,000,000, investment decisions are made by our board of directors upon recommendation of our Advisor.

In evaluating and presenting investments for approval, our Advisor, to the extent such information is available, considers and provides to our board of directors, with respect to each property, the following:

•

proposed purchase price, terms and conditions;

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physical condition, age, curb appeal and environmental reports;

•

location, visibility and access;

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historical financial performance;

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tenant rent roll and tenant creditworthiness;

•

lease terms, including rent, rent increases, length of lease term, specific tenant and landlord responsibilities, renewal, expansion, termination, purchase options, exclusive and permitted uses provisions, assignment and sublease provisions, and co-tenancy requirements;

•

local market economic conditions, demographics and population growth patterns;

•

neighboring properties; and

•

potential for new property construction in the area.

Investing in and Originating Loans

We have originated and may continue to originate or acquire real estate loans. Although we do not have a formal policy, our criteria for investing in loans are substantially the same as those involved in our investment in properties. We may originate or invest in real estate loans (including, but not limited to, investments in first, second and third mortgage loans, wraparound mortgage loans, construction mortgage loans on real property, preferred equity loans, and loans on leasehold interest mortgages). We also may invest in participations in

mortgage, bridge or mezzanine loans. Further, we may invest in unsecured loans or loans secured by assets other than real estate; however, we will not make unsecured loans or loans not secured by mortgages unless such loans are approved by a majority of our independent directors. A bridge loan is short term financing for an individual or business, until permanent or the next stage of financing, can be obtained. A mezzanine loan is a loan made in respect of certain real property that is secured by a lien on the ownership interests of the entity that, directly or indirectly, owns the real property. These loans would be subordinate to the mortgage loans directly on the underlying property.

Our underwriting process typically involves comprehensive financial, structural, operational and legal due diligence. We do not require an appraisal of the underlying property from a certified independent appraiser for an investment in mortgage, bridge or mezzanine loans, except for investments in transactions with our directors, our Advisor or any of their affiliates. For each such appraisal obtained, we will maintain a copy of such appraisal in our records for at least five years and will make it available during normal business hours for inspection and duplication by any stockholder at such stockholder’s expense. In addition, we will seek to obtain a customary lender’s title insurance policy or commitment as to the priority of the mortgage or condition of the title.

We will not make or invest in mortgage, bridge or mezzanine loans on any one property if the aggregate amount of all mortgage, bridge or mezzanine loans outstanding on the property, including our borrowings, would exceed an amount equal to 85% of the appraised value of the property, as determined by our board of directors, including a majority of our independent directors unless substantial justification exists, as determined by our board of directors, including a majority of our independent directors. Our board of directors may find such justification in connection with the purchase of mortgage, bridge or mezzanine loans in cases in which we believe there is a high probability of our foreclosure upon the property in order to acquire the underlying assets and, in respect of transactions with our affiliates, in which the cost of the mortgage loan investment does not exceed the appraised value of the underlying property. Our board of directors may find such justification in connection with the purchase of mortgage, bridge or mezzanine loans that are in default where we intend to foreclose upon the property in order to acquire the underlying assets and, in respect of transactions with our affiliates, where the cost of the mortgage loan investment does not exceed the appraised value of the underlying property.

When evaluating prospective investments in and originations of real estate loans, our management and our Advisor will consider factors such as the following:

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the ratio of the total amount of debt secured by property to the value of the property by which it is secured;

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the amount of existing debt on the property and the priority of that debt relative to our proposed investment;

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the property’s potential for capital appreciation;

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expected levels of rental and occupancy rates;

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current and projected cash flow of the property;

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the degree of liquidity of the investment;

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the geographic location of the property;

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the condition and use of the property;

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the quality, experience and creditworthiness of the borrower;

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general economic conditions in the area where the property is located; and

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any other factors that our Advisor believes are relevant.

We may originate loans from mortgage brokers or personal solicitations of suitable borrowers, or may purchase existing loans that were originated by other lenders. Our Advisor will evaluate all potential loan investments to determine if the term of the loan, the security for the loan and the loan-to-value ratio meets our

investment criteria and objectives. An officer, director, agent or employee of our Advisor will inspect the property securing the loan, if any, during the loan approval process. We do not expect to make or invest in mortgage or mezzanine loans with a maturity of more than ten years from the date of our investment, and anticipate that most loans will have a term of five years. We do not expect to make or invest in bridge loans with a maturity of more than one year (with the right to extend the term for an additional one year) from the date of our investment. Most loans which we will consider for investment would provide for monthly payments of interest and some also may provide for principal amortization, although many loans of the nature which we will consider provide for payments of interest only and a payment of principal in full at the end of the loan term. We will not originate loans with negative amortization provisions.

Investing in Real Estate Securities

We may invest in non-majority owned securities of both publicly traded and private companies primarily engaged in real estate businesses, including REITs and other real estate operating companies, and securities issued by pass-through entities of which substantially all of the assets consist of qualifying assets or real estate-related assets. We may purchase the common stock, preferred stock, debt, or other securities of these entities or options to acquire such securities. However, any investment in equity securities (including any preferred equity securities) must be approved by a majority of directors, including a majority of independent directors, not otherwise interested in the transaction as fair, competitive and commercially reasonable.

Acquisition Structure

We expect to continue acquiring fee interests in properties (a “fee interest” is the absolute, legal possession and ownership of land, property, or rights), although other methods of acquiring a property may be utilized if we deem it to be advantageous. Our focus is on acquiring commercial real estate predominantly in the data center and medical property sectors, but we also may acquire other types of real property, including office, industrial and retail properties.

To achieve our investment objectives, and to further diversify our portfolio, we invest in properties using a number of acquisition structures, which include direct and indirect acquisitions, joint ventures, leveraged investments, issuing units in our Operating Partnership in exchange for properties and making mortgages or other loans secured by the same types of properties which we may acquire. Further, our Advisor and its affiliates may purchase properties in their own name, assume loans in connection with the purchase or loan and temporarily hold title to the properties for the purpose of facilitating acquisition or financing by us or any other purpose related to our business.

Joint Ventures

We have entered into, and may enter into additional, joint ventures, partnerships and other co-ownership partnerships for the purpose of making investments. Some of the potential reasons to enter into a joint venture would be to acquire assets we could not otherwise acquire, to reduce our capital commitment to a particular asset, or to benefit from certain expertise that a partner might have. In determining whether to invest in a particular joint venture, we evaluate the assets of the joint venture under the same criteria described elsewhere in this Annual Report on Form 10-K for the selection of our investments. In the case of a joint venture, we also evaluate the terms of the joint venture as well as the financial condition, operating capabilities and integrity of our partner or partners. We may enter into joint ventures with our directors, our Advisor or its affiliates only if a majority of our board of directors, including a majority of our independent directors, not otherwise interested in the transaction approves the transaction as being fair and reasonable to us and on substantially the same terms and conditions as those received by the other joint venturers.

We have entered into, and may enter into additional, joint ventures in which we have a right of first refusal to purchase the co-venturer’s interest in the joint venture if the co-venturer elects to sell such interest. If the co-venturer elects to sell property held in any such joint venture, however, we may not have sufficient funds to

exercise our right of first refusal to buy the other co-venturer’s interest in the property held by the joint venture. If any joint venture with an affiliated entity holds interests in more than one property, the interest in each such property may be specially allocated based upon the respective proportion of funds invested by each co-venturer in each such property.

Disposition Policies

We intend to hold each asset we acquire for an extended period of time, generally three to five years. However, circumstances may arise that could result in the earlier sale of some of our assets. The determination of whether an asset will be sold or otherwise disposed of will be made after consideration of relevant factors, including prevailing economic conditions, specific real estate market conditions, tax implications for our stockholders, and other factors, with a view to achieving maximum capital appreciation. We cannot assure our stockholders that this objective will be realized. The requirements for qualification as a REIT for federal income tax purposes also will put some limits on our ability to sell assets after short holding periods.

The selling price of a property that is net leased will be determined in large part by the amount of rent payable under the lease and the “sales multiple” applied to that rent. If a tenant has a repurchase option at a formula price, we may be limited in realizing any appreciation. In connection with sales of our properties, we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale. The terms of payment will be affected by custom in the area in which the property being sold is located and the then-prevailing economic conditions.

Qualification as a REIT

We have qualified and elected to be taxed as a REIT for federal income tax purposes and we intend to continue to be taxed as a REIT. To maintain our qualification as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90.0% of our REIT taxable income to our stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders.

If we fail to maintain our qualification as a REIT in any taxable year, we would then be subject to federal income taxes on our taxable income at regular corporate rates and would not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could have a material adverse effect on our net income and net cash available for distribution to our stockholders.

Distribution Policy

Our board of directors began declaring distributions to our stockholders in July 2011, after we made our first real estate investment. The amount of distributions we pay to our stockholders is determined by our board of directors and is dependent on a number of factors, including funds available for payment of distributions, our financial condition, capital expenditure requirements, annual distribution requirements needed to maintain our status as a REIT under the Code and restrictions imposed by our organizational documents and Maryland law.

We currently pay, and intend to continue to pay, monthly distributions to our stockholders. We currently calculate our monthly distributions on a daily record and declaration date. Therefore, new investors will be entitled to distributions immediately upon the purchase of their shares. Because all of our operations are performed indirectly through our Operating Partnership, our ability to continue to pay distributions depends on our Operating Partnership’s ability to pay distributions to its partners, including to us. If we do not have enough cash from operations to fund the distribution, we may borrow, issue additional securities or sell assets in order to fund the distributions, or make the distributions out of net proceeds from the Offering. Subject to certain limited exceptions, there is no limit to the amount of distributions that we may pay from offering proceeds. We have not established any limit on the amount of proceeds from the Offering that may be used to fund distributions, except

that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (1) cause us to be unable to pay our debts as they become due in the usual course of business; (2) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences, if any; or (3) jeopardize our ability to maintain our qualification as a REIT.

To the extent that distributions to our stockholders are paid out of our current or accumulated earnings and profits, such distributions are taxable as ordinary income. To the extent that our distributions exceed our current and accumulated earnings and profits, such amounts constitute a return of capital to our stockholders for federal income tax purposes, to the extent of their basis in their stock, and thereafter will constitute capital gain. All or a portion of a distribution to stockholders may be paid from net offering proceeds and thus, constitute a return of capital to our stockholders.

See Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Distributions, for further discussion on distribution rates approved by our board of directors.

Financing Strategies and Policies

We believe that utilizing borrowing is consistent with our investment objective of maximizing the return to our stockholders. Financing for acquisitions and investments may be obtained at the time an asset is acquired or an investment is made or at a later time. In addition, debt financing may be used from time to time for property improvements, tenant improvements, leasing commissions and other working capital needs. The form of our indebtedness will vary and could be long-term or short-term, secured or unsecured, or fixed-rate or floating rate. We will not enter into interest rate swaps or caps, or similar hedging transactions or derivative arrangements for speculative purposes but may do so in order to manage or mitigate our interest rate risks on variable rate debt.

We will not borrow from our Advisor, any member of our board of directors, or any of their affiliates unless a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction approves the transaction as being fair, competitive and commercially reasonable and no less favorable to us than comparable loans between unaffiliated parties.

Conflicts of Interest

We are subject to various conflicts of interest arising out of our relationship with our Advisor, and its affiliates, including conflicts related to the arrangements pursuant to which our Advisor and its affiliates will be compensated by us. Our agreements and compensation arrangements with our Advisor and its affiliates were not determined by arm’s-length negotiations. Some of the potential conflicts of interest in our transactions with our Advisor and its affiliates, and the limitations on our Advisor adopted to address these conflicts, are described below.

Our Advisor and its affiliates try to balance our interests with their duties to other programs. However, to the extent that our Advisor or its affiliates take actions that are more favorable to other entities than to us, these actions could have a negative impact on our financial performance and, consequently, on distributions to our stockholders and the value of our stock. In addition, our directors and officers and certain of our stockholders may engage for their own account in business activities of the types conducted or to be conducted by our subsidiaries and us.

Our independent directors have an obligation to function on our behalf in all situations in which a conflict of interest may arise, and all of our directors have a fiduciary obligation to act on behalf of our stockholders.

Interests in Other Real Estate Programs

Affiliates of our officers and entities owned or managed by such affiliates may acquire or develop real estate for their own accounts, and have done so in the past. Furthermore, affiliates of our officers and entities owned or

managed by such affiliates may form additional real estate investment entities in the future, whether public or private, which may have the same investment objectives and policies as we do and which may be involved in the same geographic area, and such persons may be engaged in sponsoring one or more of such entities at approximately the same time as our shares of common stock are being offered. Our Advisor, its affiliates and affiliates of our officers are not obligated to present to us any particular investment opportunity that comes to their attention, unless such opportunity is of a character that might be suitable for investment by us. Our Advisor and its affiliates likely will experience conflicts of interest as they simultaneously perform services for us and other affiliated real estate programs.

Any affiliated entity, whether or not currently existing, could compete with us in the sale or operation of the properties. We will seek to achieve any operating efficiency or similar savings that may result from affiliated management of competitive properties. However, to the extent that affiliates own or acquire a property that is adjacent, or in close proximity, to a property we own, our property may compete with the affiliate’s property for tenants or purchasers.

Every transaction that we enter into with our Advisor or its affiliates is subject to an inherent conflict of interest. Our board of directors may encounter conflicts of interest in enforcing our rights against any affiliate in the event of a default by or disagreement with an affiliate or in invoking powers, rights or options pursuant to any agreement between us and our Advisor or any of its affiliates.

Other Activities of Our Advisor and Its Affiliates

We rely on our Advisor for the day-to-day operation of our business. As a result of the interests of members of its management in other programs sponsored by affiliates of our Advisor and the fact that they also are engaged, and will continue to engage, in other business activities, our Advisor and its affiliates have conflicts of interest in allocating their time between us and other programs sponsored by affiliates of our Advisor and other activities in which they are involved. However, our Advisor believes that it and its affiliates have sufficient personnel to discharge fully their responsibilities to all of the programs sponsored by affiliates of our Advisor and other ventures in which they are involved.

In addition, each of our executive officers also serves as an officer of our Advisor, our Property Manager, our Dealer Manager and/or other affiliated entities. As a result, these individuals owe fiduciary duties to these other entities, which may conflict with the fiduciary duties that they owe to us and our stockholders.

We may acquire properties or interests in properties from entities affiliated with our Advisor. We will not acquire any property from entities affiliated with our Advisor unless a majority of our directors not otherwise interested in the transaction and a majority of our independent directors determine that the transaction is fair and reasonable to us. The purchase price of any property we acquire from our Advisor, their affiliates or a director will not exceed the current appraised value of the property. In addition, the price of the property we acquire from an affiliate may not exceed the cost of the property to the affiliate, unless a majority of our directors and a majority of our independent directors determine that substantial justification for the excess exists and the excess is reasonable. During the year ended December 31, 2013, we did not purchase any properties from our Advisor, its affiliates or a director.

Competition in Acquiring, Leasing and Operating Properties

Conflicts of interest will exist to the extent that we may acquire, or seek to acquire, properties in the same geographic areas where properties owned by other programs sponsored by affiliates of our Advisor are located. In such a case, a conflict could arise in the acquisition or leasing of properties if we and another program sponsored by affiliates of our Advisor were to compete for the same properties or tenants in negotiating leases, or a conflict could arise in connection with the resale of properties if we and another program sponsored by affiliates of our Advisor were to attempt to sell similar properties at the same time. Conflicts of interest also may exist at such time as we or our affiliates managing property on our behalf seek to employ developers, contractors

or building managers, as well as under other circumstances. Our Advisor will seek to reduce conflicts relating to the employment of developers, contractors or building managers by making prospective employees aware of all such properties seeking to employ such persons. In addition, our Advisor will seek to reduce conflicts that may arise with respect to properties available for sale or rent by making prospective purchasers or tenants aware of all such properties. However, these conflicts cannot be fully avoided in that there may be established differing compensation arrangements for employees at different properties or differing terms for resales or leasing of the various properties.

Affiliated Dealer Manager

Since our Dealer Manager is an affiliate of our Advisor, we did not have the benefit of an independent due diligence review and investigation of the type normally performed by an unaffiliated, independent underwriter in connection with the Offering.

Affiliated Property Manager

The properties we acquire are managed and leased by our Property Manager, which is an affiliate of our Advisor, pursuant to a property management and leasing agreement. Our Property Manager serves as a property manager for properties owned by affiliated real estate programs, some of which may be in competition with our properties. Management fees paid to our Property Manager are based on a percentage of the rental income received by the managed properties.

Joint Ventures with Affiliates of Our Advisor

We may enter into joint ventures with other programs sponsored by affiliates of our Advisor (as well as other parties) for the acquisition, development or improvement of properties. We will not enter into a joint venture with our Sponsor, our Advisor, any director or any affiliate thereof, unless a majority of our directors, including a majority of our independent directors, not otherwise interested in such transaction, approve the transaction as being fair and reasonable to us and on substantially the same terms and conditions as those received by the other joint ventures. Our Advisor and its affiliates may have conflicts of interest in determining which programs sponsored by affiliates of our Advisor should enter into any particular joint venture agreement. The co-venturer may have economic or business interests or goals which are or which may become inconsistent with our business interests or goals. In addition, should any such joint venture be consummated, our Advisor may face a conflict in structuring the terms of the relationship between our interests and the interest of the co-venturer and in managing the joint venture. Since our Advisor and its affiliates will control both us and any affiliated co-venturer, agreements and transactions between the co-venturers with respect to any such joint venture will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers.

Receipt of Fees and Other Compensation by Our Advisor and Its Affiliates

A transaction involving the purchase and sale of properties may result in the receipt of commissions, fees and other compensation by our Advisor and its affiliates, including acquisition and advisory fees, the dealer manager fee, property management and leasing fees, disposition fees, brokerage commissions and participation in net sale proceeds. Subject to oversight by our board of directors, our Advisor will have considerable discretion with respect to all decisions relating to the terms and timing of all transactions. Therefore, our Advisor may have conflicts of interest concerning certain actions taken on our behalf, particularly due to the fact that such fees generally will be payable to our Advisor and its affiliates regardless of the quality of the properties acquired or the services provided to us.

Employees

We have no direct employees. The employees of our Advisor and its affiliates provide services for us related to acquisition, property management, asset management, accounting, investor relations, and all other administrative services. The employees of our affiliated Dealer Manager provide wholesale brokerage services.

We are dependent on our Advisor and its affiliates for services that are essential to us, including the sale of shares of our common stock, asset acquisition decisions, property management and other general administrative responsibilities. In the event that these companies were unable to provide these services to us, we would be required to obtain such services from other sources.

Reportable Segments

We operate through two reportable business segments-data centers and medical facilities. See Note 15—“Segment Reporting” to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

Insurance

See the section captioned “—Description of Leases” above.

Competition

As we continue to purchase properties for our portfolio, we are in competition with other potential buyers for the same properties, and may have to pay more to purchase the property than if there were no other potential acquirers or we may have to locate another property that meets our investment criteria. Although we generally acquire properties subject to existing leases, the leasing of real estate is highly competitive in the current market, and we may experience competition for tenants from owners and managers of competing projects. As a result, we may have to provide free rent, incur charges for tenant improvements, or offer other inducements, or we might not be able to timely lease the space, all of which may have an adverse impact on our results of operations. At the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchasers for its properties.

Concentration of Credit Risk and Significant Leases

As of December 31, 2013, we had cash on deposit, including restricted cash and escrowed funds, in ten financial institutions, seven of which had deposits in excess of current federally insured levels totaling $11.8 million; however we have not experienced any losses in such accounts. We limit cash investments to financial institutions with high credit standing; therefore, we believe we are not exposed to any significant risk on cash.

Based on leases of our properties in effect as of December 31, 2013, two tenants accounted for 10% or more of our 2013 rental revenue. The following table shows the tenants that accounted for 10% or more of our 2013 rental revenue:


Tenant	Property	Segment	2013 Rental Revenue (in thousands)(1)		Percentage of 2013 Rental Revenue	Gross Leased Area (Sq Ft)		Lease Expiration Date
Vanguard Group, Inc.	Philadelphia Data Center	Data Centers	$	4,800	11.4%		121,000		12/31/2024
Level 3 Communications, LLC	180 Peachtree Data Center; Southfield Data Center	Data Centers		4,474	10.6%		185,239		05/31/2021; 05/24/2027

			$	9,274			306,239

(1)	Rental revenue is based on the total revenue recognized and reported in the accompanying consolidated statements of comprehensive income (loss).

In addition, we had one tenant, AT&T Services, Inc. (occupying three properties), that, based on all leases in-place as of December 31, 2013, and assuming no additional leases, would account for 28.7% of 2014 rental revenue (calculated based on 2014 rental revenue as a percentage of total 2014 contractual revenue). We believe that the loss of this tenant would have a material adverse effect on our business and results of operations.

The following table shows the segment diversification of our real estate portfolio, including one property owned through a consolidated partnership, based on rental revenue as of December 31, 2013:


Industry	Total Number of Leases		Gross Leased Area (Sq Ft)		2013 Rental Revenue (in thousands)		Percentage of 2013 Rental Revenue
Data Centers		23		2,077,537	$	24,329		57.9	%
Medical Facilities		21		1,049,596		17,686		42.1	%

		44		3,127,133	$	42,015		100.0	%

Based on leases of our properties in effect as of December 31, 2013, the following table shows the MSAs diversification of our real estate properties that accounted for 10% or more of our 2013 rental revenue:


MSA	Total Number of Leases		Gross Leased Area (Sq Ft)		2013 Rental Revenue (in thousands)		Percentage of 2013 Rental Revenue
Dallas-Ft. Worth-Arlington, TX		5		363,232	$	10,204		24.3	%
Atlanta-Sandy Springs-Marietta, GA		8		370,816		7,692		18.3	%
Philadelphia-Camden-Wilmington, PA		1		121,000		4,800		11.4	%

		14		855,048	$	22,696

Environmental Matters

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. In connection with ownership and operation of real estate, the Company may be potentially liable for costs and damages related to environmental matters. We take commercially reasonable steps to protect ourselves from the impact of these laws, including obtaining environmental assessments of all properties that we acquire. We also carry environmental liability insurance on our properties, which provides coverage for pollution liability for third party bodily injury and property damage claims.

Available Information

We electronically file our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports with the SEC. We have also filed Registration Statements on Form S-11, amendments to our Registration Statements and supplements to our prospectuses in connection with our Offering and our follow-on offering. Copies of our filings with the SEC may be obtained from the SEC’s website, http://www.sec.gov. Access to these filings is free of charge. In addition, we make such materials that are electronically filed with the SEC, available at www.cvmissioncriticalreit.com as soon as reasonably practicable. They are also available for printing by any stockholder upon request.

Item 1A.

Risk Factors.

The factors described below represent our principal risks. Other factors may exist that we do not consider to be significant based on information that is currently available or that we are not currently able to anticipate.

Risks Related to an Investment in Carter Validus Mission Critical REIT, Inc.

We have a limited operating history and limited established financing sources, and the prior performance of real estate investment programs sponsored by affiliates of our Advisor may not be an indication of our future results.

We have limited operating history and our stockholders should not rely upon the past performance of other real estate investment programs sponsored by affiliates of our Advisor to predict our future results. We were incorporated on December 16, 2009. Therefore, the prior performance of real estate investment programs sponsored by John Carter, Mario Garcia, Jr., Robert Peterson and Robert Winslow and other affiliates of our Advisor may not be indicative of our future results.

Moreover, we have limited established financing sources. Presently, both we and our Advisor are funded by capital contributions from our Sponsor, which is directly or indirectly controlled by Messrs. Carter and Garcia. If our capital resources, or those of our Advisor, are insufficient to support our operations, we will not be successful.

There is no public trading market for our shares and there may never be one; therefore, it may be difficult for our stockholders to sell their shares.

There currently is no public market for our shares and there may never be one. If our stockholders are able to find a buyer for their shares, they may not sell their shares unless the buyer meets applicable suitability and minimum purchase standards and the sale does not violate state securities laws. Our charter also prohibits the ownership of more than 9.8% in value of the aggregate of our outstanding shares of stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of any class or series of the outstanding shares of our stock by any one person, unless exempted by our board of directors, which may deter large investors from purchasing our stockholders’ shares. Moreover, our share repurchase program includes numerous restrictions that would limit our stockholders ability to sell their shares to us. Our board of directors may reject any request for repurchase of shares, suspend (in whole or in part) the share repurchase program at any time and from time to time upon notice to our stockholders and amend or terminate our share repurchase program at any time upon 30 days’ notice to our stockholders. Therefore, it may be difficult for stockholders to sell their shares promptly or at all. If stockholders are able to sell their shares, they likely will have to sell them at a substantial discount to the price they paid for the shares. It also is likely that stockholders’ shares would not be accepted as the primary collateral for a loan.

We may suffer from delays in locating suitable investments, which could adversely affect our ability to make distributions and the value of our stockholders’ investment.

Except for investors who purchase shares in the Offering after such time as the prospectus for the Offering is supplemented to describe one or more identified investments, our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments. Our stockholders must rely entirely on the management ability of our Advisor and the oversight of our board of directors. We cannot be sure that our Advisor will be successful in obtaining investments on financially attractive terms or at all, or that, if it makes investments on our behalf, our objectives will be achieved. We could suffer from delays in locating suitable investments, particularly as a result of our reliance on our Advisor at times when management of our Advisor is simultaneously seeking to locate suitable investments for other affiliated programs. Delays we encounter in the selection, acquisition and, if we develop properties, development of income-producing properties, likely would adversely affect our ability to make distributions and the value of our

stockholders’ overall returns. In such event, we may pay all or a substantial portion of our distributions from the proceeds of the Offering or from borrowings in anticipation of future cash flow, which may constitute a return on the capital, of our stockholders. Distributions from the proceeds of the Offering or from borrowings also could reduce the amount of capital we ultimately invest in properties. This, in turn, would reduce the value of our stockholders’ investment. In particular, if we acquire properties prior to the start of construction or during the early stages of construction, it typically will take at least several months to complete construction and rent available space. Therefore, our stockholders could suffer delays in the receipt of cash distributions attributable to those particular properties. If our Advisor is unable to obtain additional suitable investments for us, we will hold the uninvested proceeds of the Offering in an interest-bearing account or invest such proceeds in short-term, investment-grade investments. If we cannot invest all of the proceeds from the Offering within a reasonable amount of time, or if our board of directors determines it is in the best interests of our stockholders, we will return the uninvested proceeds to investors and investors may receive less than the amount they initially invested in the Offering.

Our dealer manager has limited experience in public offerings, which may affect the amount of funds it raises in the Offering.

Our Dealer Manager was formed in March 2009 and has conducted a limited number of other public offerings such as the Offering. This lack of experience may affect the way in which our Dealer Manager conducts the Offering. In addition, because the Offering is a “best efforts” basis, we may not raise proceeds in the Offering sufficient to meet our investment objectives.

Our properties are, and we expect future properties primarily will be, located in the continental United States and will be affected by the current economic downturn, as well as economic cycles and risks inherent to that area.

We expect to use substantially all the net proceeds of the Offering to acquire commercial real estate located in the continental United States. Real estate markets are subject to economic downturns, as they have been in the past, and we cannot predict how economic conditions will impact this market in both the short and long term. Declines in the economy or a decline in the real estate market in the continental United States could hurt our financial performance and the value of our properties. The factors affecting economic conditions in the continental United States include:

•

financial performance and productivity of the publishing, advertising, financial, technology, retail, insurance and real estate industries;

•

business layoffs or downsizing;

•

industry slowdowns;

•

relocations of businesses;

•

changing demographics;

•

increased telecommuting and use of alternative work places;

•

infrastructure quality;

•

any oversupply of, or reduced demand for, real estate;

•

concessions or reduced rental rates under new leases for properties where tenants defaulted; and

•

increased insurance premiums.

Economic conditions may adversely affect our income and we could be subject to risks associated with acquiring discounted real estate assets.

U.S. and international markets have undergone pervasive and fundamental disruptions over the past number of years due to a combination of many factors, including decreasing values of home prices, limited access to credit markets, higher fuel prices, less consumer spending and fears of a national and global recession. The

effects of such volatility may persist as financial institutions continue to take the necessary steps to restructure their business and capital structures. As a result, this economic downturn has reduced demand for space and removed support for rents and property values. To the extent that turmoil in the financial markets exists, it has the potential to materially affect the value of our properties and other investments. If real property or other real estate-related asset values continue to decline after we acquire them, we may have a difficult time making new acquisitions or generating returns on our stockholders’ investments.

In addition, we are subject to the risks generally incident to the ownership of discounted real estate assets. Such assets may be purchased at a discount from historical cost due to, among other things, substantial deferred maintenance, abandonment, undesirable locations or markets, or poorly structured financing of the real estate or debt instruments underlying the assets, which has since lowered their value. Further, our results of operations are sensitive to the volatility of the credit markets. Instability in the financial markets may limit the availability of lines of credit and the degree to which people and entities have access to cash to pay rents or debt service on the underlying assets. Such illiquidity has the effect of increasing vacancies, increasing bankruptcies and weakening interest rates commercial entities can charge consumers, which can all decrease the value of already discounted real estate assets. Should such conditions exist, the continued inability of the underlying real estate assets to produce income may weaken our return on our investments, which, in turn, may weaken our stockholders’ return on investment.

Further, irrespective of the instability the financial markets may have on the return produced by discounted real estate assets, the evolving efforts to correct the instability make the valuation of such assets highly unpredictable. Though we intend to purchase real estate assets at a discount from historical cost, the fluctuation in market conditions makes judging the future performance of such assets difficult. There is a risk that we may not purchase real estate assets at absolute discounted rates and that such assets may continue to decline in value.

Our stockholders may be more likely to sustain a loss on their investment because our Sponsor does not have as strong an economic incentive to avoid losses as do sponsors who have made significant equity investments in their companies.

Our Sponsor has only invested $200,000 in us through the purchase of 20,000 shares of our common stock at $10.00 per share and may not have as much economic incentive as do sponsors who have invested more equity in their companies. Additionally, if we are successful in raising enough proceeds in the Offering to be able to reimburse our Sponsor for our significant organization and offering expenses, our Sponsor will have little exposure to loss in value of our shares. Without this exposure, our stockholders may be at a greater risk of loss because our Sponsor may have less to lose from a decrease in the value of our shares than does a sponsor that makes more significant equity investments in its company.

Distributions paid from sources other than our cash flow from operations will result in us having fewer funds available for the acquisition of properties and other real estate-related investments, which may adversely affect our ability to fund future distributions with cash flow from operations and may adversely affect our stockholders’ overall return.

We have paid, and may continue to pay, distributions from sources other than from our cash flow from operations. For the year ended December 31, 2013, our cash flow provided by operations of approximately $25.7 million was a shortfall of $0.7 million, or 2.7%, of our distributions paid (total distributions were approximately $26.4 million, of which $14.2 million was cash and $12.2 million was reinvested in shares of our common stock pursuant to our DRIP) during such period and such shortfall was paid from proceeds from the offering. For the year ended December 31, 2012, our cash flow provided by operations of $1.3 million was a shortfall of $4.7 million, or 78.3%, of our distributions paid (total distributions were $6.0 million, of which $3.2 million were paid in cash and $2.8 million were reinvested in shares of our common stock pursuant to our DRIP) during such period, such shortfall was paid from proceeds from the Offering and common stock issued pursuant to our DRIP.

We do not have any limits on the sources of funding distribution payments to our stockholders. We may pay, and have no limits on the amounts we may pay, distributions from any source, such as from borrowings, the sale of assets, the sale of additional securities, advances from our Advisor, our Advisor’s deferral, suspension and/or waiver of its fees and expense reimbursements and offering proceeds. Funding distributions from borrowings could restrict the amount we can borrow for investments, which may affect our profitability. Funding distributions with the sale of assets may affect our ability to generate cash flows. Funding distributions from the sale of additional securities could dilute stockholders’ interest in us if we sell shares of our common stock to third party investors. If we fund distributions from the proceeds of the Offering, we will have less funds available for acquiring properties or real estate-related investments. Our inability to acquire additional properties or real estate-related investments may have a negative effect on our ability to generate sufficient cash flow from operations to pay distributions. As a result, the return stockholders realize on their investment may be reduced and investors who invest in us before we generate significant cash flow may realize a lower rate of return than later investors. Payment of distributions from any of the above-mentioned sources could restrict our ability to generate sufficient cash flow from operations, affect our profitability and/or affect the distributions payable to our stockholders upon a liquidity event, any or all of which may have an adverse effect on their investment.

We have experienced losses in the past, and we may experience additional losses in the future.

Historically, we have experienced net losses and we may not be profitable or realize growth in the value of our investments. Many of our losses can be attributed to start-up costs and operating costs incurred prior to purchasing properties or making other investments that generate revenue and acquisition related expenses. Please see the “Selected Financial Data” section of the Annual Report on Form 10-K, as well as the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and our consolidated financial statements and the notes included in this Annual Report on Form 10-K for a discussion of our operational history and the factors for our losses.

The offering price for our shares is not based on the book value or net asset value of our current expected investments or our current or expected operating income.

The offering price for our shares is not based on the book value or net asset value of our current or expected investment or our current or expected operating income. Our board of directors does not intend to provide an estimate of the value of our assets until 18 months after the end of the offering period. Until such time as our board of directors determines a reasonable estimate of the value of our assets, the price of our shares is not intended to reflect our per share net asset value.

A high concentration of our properties in a particular MSA area, or with tenants in a similar industry, would magnify the effects of downturns in that geographic area or industry.

As of December 31, 2013, we owned 32 properties, located in 24 MSAs (including one property owned through a consolidated partnership), three of which accounted for 10.0% or more of our rental revenue. Properties located in the Dallas-Ft.Worth-Arlington, Texas area accounted for 24.3% of our 2013 rental revenue, properties located in the Atlanta-Sandy Springs-Marietta, Georgia area accounted for 18.3% of our 2013 rental revenue and properties located in the Philadelphia-Camden-Wilmington, Pennsylvania area accounted for 11.4% of our 2013 rental revenue. Accordingly, there is a geographic concentration of risk subject to fluctuations in each MSA’s economy. Geographic concentration of our properties exposes us to economic downturns in the areas where our properties are located. A regional or local recession in any of these areas could adversely affect our ability to generate or increase operating revenues, attract new tenants or dispose of unproductive properties. Similarly, if tenants of our properties become concentrated in a certain industry or industries, any adverse effect to that industry generally would have a disproportionately adverse effect on our portfolio.

If our Advisor loses or is unable to obtain key personnel, our ability to implement our investment strategies could be delayed or hindered, which could adversely affect our ability to make distributions and the value of our stockholders’ investment.

Our success depends to a significant degree upon the contributions of certain of our executive officers and other key personnel of our Advisor, including Messrs. Carter, Garcia, Miller, Seton, Sakow, Peterson and Winslow, each of whom would be difficult to replace. Our Advisor does not have an employment agreement with any of these key personnel and we cannot guarantee that all, or any particular one, will remain affiliated with us and/or our Advisor. If any of our key personnel were to cease their affiliation with our Advisor, our operating results could suffer. Further, we do not intend to separately maintain key person life insurance on Messrs. Carter, Garcia, Miller, Seton, Sakow, Peterson and Winslow or any other person. We believe that our future success depends, in large part, upon our Advisor’s ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure our stockholders that our Advisor will be successful in attracting and retaining such skilled personnel. If our Advisor loses or is unable to obtain the services of key personnel, our ability to implement our investment strategies could be delayed or hindered, and the value of our stockholders’ investment may decline.

Our rights and the rights of our stockholders to recover claims against our officers, directors and our Advisor are limited, which could reduce their and our recovery against them if they cause us to incur losses.

Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, subject to certain limitations set forth therein or under Maryland law, our charter provides that no director or officer will be liable to us or our stockholders for money damages, requires us to indemnify and advance expenses to our directors, officers and Advisor and our Advisor’s affiliates and permits us, with approval of our board of directors or a committee of the board of directors to indemnify our employees and agents. Although our charter does not allow us to indemnify or hold harmless an indemnitee to a greater extent than permitted under Maryland law and the North American Securities Administrators Association (“NASAA”) REIT Guidelines, we and our stockholders may have more limited rights against our directors, officers, employees and agents, and our Advisor and its affiliates, than might otherwise exist under common law, which could reduce stockholders and our ability to recover against them. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents or our Advisor and its affiliates in some cases, which would decrease the cash otherwise available for distribution to stockholders.

The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions, make additional investments and service our debt.

As of December 31, 2013, we had cash and cash equivalents in excess of federally insurable limits. The Federal Deposit Insurance Corporation only insures interest-bearing accounts in amounts up to $250,000 per depositor per insured bank. While we monitor our cash balance in our operating accounts, if any of the banking institutions in which we have deposited funds ultimately fails, we may lose our deposits over $250,000. The loss of our deposits may have a material adverse effect on our financial condition.

Risks Related to Conflicts of Interest

We are subject to conflicts of interest arising out of our relationships with our Advisor and its affiliates, including the material conflicts discussed below. See the “Conflicts of Interest” section of Part I, Item I. of this Annual Report on Form 10-K.

Our Advisor will face conflicts of interest relating to the purchase and leasing of properties, and such conflicts may not be resolved in our favor, which could adversely affect our investment opportunities.

Affiliates of our Advisor have sponsored and may sponsor one or more other real estate investment programs in the future. We may buy properties at the same time as one or more of the other programs sponsored by affiliates of our Advisor and managed by officers and key personnel of our Advisor. There is a risk that our Advisor will choose a property that provides lower returns to us than a property purchased by another program sponsored by affiliates of our Advisor. We cannot be sure that officers and key personnel acting on behalf of our Advisor and on behalf of managers of other programs sponsored by affiliates of our Advisor will act in our best interests when deciding whether to allocate any particular property to us. In addition, we may acquire properties in geographic areas where other programs sponsored by affiliates of our Advisor own properties. Also, we may acquire properties from, or sell properties to, other programs sponsored by affiliates of our Advisor. If one of the other programs sponsored by affiliates of our Advisor attracts a tenant that we are competing for, we could suffer a loss of revenue due to delays in locating another suitable tenant. Stockholders will not have the opportunity to evaluate the manner in which these conflicts of interest are resolved before or after making their investment. Similar conflicts of interest may apply if our Advisor determines to make or purchase mortgage, bridge or mezzanine loans or participations therein on our behalf, since other programs sponsored by affiliates of our Advisor may be competing with us for these investments.

Our Advisor faces conflicts of interest relating to joint ventures with its affiliates, which could result in a disproportionate benefit to the other venture partners at our expense.

We have entered into, and may enter into additional, joint ventures with other programs sponsored by affiliates of our Advisor for the acquisition, development or improvement of properties. Our Advisor may have conflicts of interest in determining which program sponsored by affiliates of our Advisor should enter into any particular joint venture agreement. In addition, our Advisor may face a conflict in structuring the terms of the relationship between our interests and the interest of the affiliated co-venturer managing the joint venture. Since our Advisor and its affiliates will control both the affiliated co-venturer and, to a certain extent, us, agreements and transactions between the co-venturers with respect to any such joint venture will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers, which may result in the co-venturer receiving benefits greater than the benefits that we receive. In addition, we may assume liabilities related to the joint venture that exceed the percentage of our investment in the joint venture.

Our Advisor and its officers and certain of its key personnel face competing demands relating to their time, and this may cause our operating results to suffer.

Our Advisor and its officers and employees and certain of our key personnel and their respective affiliates are key personnel, general partners and sponsors of other real estate programs having investment objectives and legal and financial obligations similar to ours and may have other business interests as well. Because these persons have competing demands on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and fewer resources to our business than is necessary or appropriate. If this occurs, the returns on our investments may suffer.

Our officers and directors face conflicts of interest related to the positions they hold with affiliated entities, which could hinder our ability to successfully implement our business strategy and generate returns to our stockholders.

Certain of our executive officers and directors, including John Carter, who also serves as the chairman of our board of directors, Mario Garcia, Jr., Todd Sakow and Lisa Drummond, also are officers and/or directors of our Advisor, our Property Manager, our Dealer Manager and/or other affiliated entities. As a result, these individuals owe fiduciary duties to these other entities and their stockholders and limited partners, which fiduciary duties may conflict with the duties that they owe to us and our stockholders. Their loyalties to these other entities could result in actions or inactions that are detrimental to our business, which could harm the implementation of our business strategy and our investment and leasing opportunities. Conflicts with our business and interests are most likely to arise from involvement in activities related to:

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allocation of new investments and management time and services between us and the other entities,

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our purchase of properties from, or sale of properties, to affiliated entities,

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the timing and terms of the investment in or sale of an asset,

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development of our properties by affiliates,

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investments with affiliates of our advisor,

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compensation to our advisor, and

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our relationship with our Dealer Manager and property manager.

If we do not successfully implement our business strategy, we may be unable to generate cash needed to continue to make distributions to our stockholders and to maintain or increase the value of our assets.

Our Advisor faces conflicts of interest relating to the performance fee structure under our advisory agreement, which could result in actions that are not necessarily in the long-term best interests of our stockholders.

Under our advisory agreement, our Advisor or its affiliates are entitled to fees that are structured in a manner intended to provide incentives to our Advisor to perform in our best interests and in the best interests of our stockholders. However, because our Advisor does not maintain a significant equity interest in us and is entitled to receive substantial minimum compensation regardless of performance, our Advisor’s interests are not wholly aligned with those of our stockholders. In that regard, our Advisor could be motivated to recommend riskier or more speculative investments, or to use additional debt when acquiring assets, in order for us to generate the specified levels of performance or sales proceeds that would entitle our Advisor to fees. In addition, our Advisor’s or its affiliates’ entitlement to fees upon the sale of our assets and to participate in sale proceeds could result in our Advisor recommending sales of our investments at the earliest possible time at which sales of investments would produce the level of return that would entitle our Advisor to compensation relating to such sales, even if continued ownership of those investments might be in our best long-term interest. Our advisory agreement requires us to pay a performance-based termination fee to our Advisor or its affiliates if we terminate the advisory agreement and have not paid our Advisor a subordinated incentive listing fee to our Advisor in connection with the listing of our shares for trading on an exchange. To avoid paying this fee, our independent directors may decide against terminating the advisory agreement prior to our listing of our shares even if, but for the termination fee, termination of the advisory agreement would be in our best interest. In addition, the requirement to pay the fee to our Advisor or its affiliates at termination could cause us to make different investment or disposition decisions than we would otherwise make in order to satisfy our obligation to pay the fee to the terminated Advisor. Moreover, our Advisor will have the right to terminate the advisory agreement upon a change of control of our company and thereby trigger the payment of the performance fee, which could have the effect of delaying, deferring or preventing the change of control.

There is no separate counsel for us and our affiliates, which could result in conflicts of interest.

Morris, Manning & Martin, LLP acts as legal counsel to us and also represents our Advisor and some of its affiliates. There is a possibility in the future that the interests of the various parties may become adverse and, under the Code of Professional Responsibility of the legal profession, Morris, Manning & Martin, LLP may be precluded from representing any one or all such parties. If any situation arises in which our interests appear to be in conflict with those of our Advisor or its affiliates, additional counsel may be retained by one or more of the parties to assure that their interests are adequately protected. Moreover, should a conflict of interest not be readily apparent, Morris, Manning & Martin, LLP may inadvertently act in derogation of the interest of the parties, which could affect our ability to meet our investment objectives.

Risks Related to Our Corporate Structure

The limit on the number of shares a person may own may discourage a takeover that could otherwise result in a premium price to our stockholders.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. In this connection, among other things, unless exempted by our board of directors, no person may own more than 9.8% in value of the aggregate of our outstanding shares of stock or more than 9.8% (in value or number, whichever is more restrictive) of any class or series of the outstanding shares of our stock. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might provide a premium price for holders of our common stock.

Our charter permits our board of directors to issue stock with terms that may subordinate the rights of common stockholders or discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.

Our charter permits our board of directors to issue up to 350,000,000 shares of stock. In addition, our board of directors, without any action by our stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of stock that we have authority to issue. Our board of directors may classify or reclassify any unissued common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption of any such stock. Thus, if also approved by a majority of our independent directors not otherwise interested in the transaction, who will have access, at our expense, to our legal counsel or independent legal counsel, our board of directors could authorize the issuance of preferred stock with terms and conditions that could have a priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Preferred stock could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might provide a premium price for holders of our common stock.

Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may limit our stockholders’ ability to exit the investment.

Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

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any person who beneficially owns 10% or more of the voting power of the corporation’s outstanding voting stock; or

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an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation.

A person is not an interested stockholder under the statute if our board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, our board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by our board of directors.

After the five-year prohibition, any business combination between a Maryland corporation and an interested stockholder generally must be recommended by our board of directors of the corporation and approved by the affirmative vote of at least:

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80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and

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two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. The business combination statute permits various exemptions from its provisions, including business combinations that are exempted by our board of directors prior to the time that the interested stockholder becomes an interested stockholder. Our board of directors has exempted from the business combination statute any business combination involving our Advisor or any of its affiliates. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to business combinations between us and our Advisor or any of its affiliates. As a result, our Advisor and any of its affiliates may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the super-majority vote requirements and the other provisions of the statute. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Maryland law limits the ability of a third-party to buy a large stake in us and exercise voting power in electing directors.

The Maryland Control Share Acquisition Act provides that “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by stockholders by a vote of two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by the acquirer, by officers or by employees who are directors of the corporation are excluded from shares entitled to vote on the matter. “Control shares” are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer can exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer, directly or indirectly, to exercise or direct the exercise of voting power of shares of stock in electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A “control share acquisition” means the acquisition of issued and outstanding control shares. The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation. Our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions of our stock by any person. There can be no assurance that this provision will not be amended or eliminated at any time in the future.

Stockholders’ investment return may be reduced if we are required to register as an investment company under the Investment Company Act of 1940.

The Company is not registered, and does not intend to register itself or any of its subsidiaries, as an investment company under the Investment Company Act of 1940, or the Investment Company Act. If we become obligated to register the Company or any of its subsidiaries as an investment company, the registered entity would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things:

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limitations on capital structure;

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restrictions on specified investments;

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prohibitions on transactions with affiliates; and

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compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.

The Company intends to conduct its operations directly and through wholly or majority-owned subsidiaries, so that the Company and each of its subsidiaries do not fall within the definition of an “investment company” under the Investment Company Act. Under Section 3(a)(1)(A) of the Investment Company Act, a company is deemed to be an “investment company” if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an “investment company” if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets on an unconsolidated basis, which we refer to as the “40% test.”

The Company intends to conduct its operations so that the Company and most, if not all, of its wholly and majority-owned subsidiaries will comply with the 40% test. We will continuously monitor our holdings on an ongoing basis to determine the compliance of the Company and each wholly and majority-owned subsidiary with this test. We expect that most, if not all, of the Company’s wholly-owned and majority-owned subsidiaries will not be relying on exemptions under either Section 3(c)(1) or 3(c)(7) of the Investment Company Act. Consequently, interests in these subsidiaries (which are expected to constitute most, if not all, of our assets) generally will not constitute “investment securities.” Accordingly, we believe that the Company and most, if not all, of its wholly and majority-owned subsidiaries will not be considered investment companies under Section 3(a)(1)(C) of the Investment Company Act.

Since we are primarily engaged in the business of acquiring real estate, we believe that the Company and most, if not all, of its wholly and majority-owned subsidiaries will not be considered investment companies under Section 3(a)(1)(A) of the Investment Company Act. If the Company or any of its wholly or majority-owned subsidiaries would ever inadvertently fall within one of the definitions of “investment company,” we intend to rely on the exception provided by Section 3(c)(5)(C) of the Investment Company Act.

Under Section 3(c)(5)(C), the SEC staff generally requires the Company to maintain at least 55% of its assets directly in qualifying assets and at least 80% of the entity’s assets in qualifying assets and in a broader category of real estate-related assets to qualify for this exception. Mortgage-related securities may or may not constitute such qualifying assets, depending on the characteristics of the mortgage-related securities, including the rights that we have with respect to the underlying loans. The Company’s ownership of mortgage-related securities, therefore, is limited by provisions of the Investment Company Act and SEC staff interpretations.

The method we use to classify our assets for purposes of the Investment Company Act will be based in large measure upon no-action positions taken by the SEC staff in the past. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and

a number of these no-action positions were issued more than ten years ago. Accordingly, no assurance can be given that the SEC staff will concur with our classification of our assets. In addition, the SEC staff may, in the future, issue further guidance that may require us to re-classify our assets for purposes of qualifying for an exclusion from regulation under the Investment Company Act. If we are required to re-classify our assets, we may no longer be in compliance with the exclusion from the definition of an “investment company” provided by Section 3(c)(5)(C) of the Investment Company Act.

A change in the value of any of our assets could cause us or one or more of our wholly or majority-owned subsidiaries to fall within the definition of “investment company” and negatively affect our ability to maintain our exemption from regulation under the Investment Company Act. To avoid being required to register the Company or any of its subsidiaries as an investment company under the Investment Company Act, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional income-or loss-generating assets that we might not otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy.

If we were required to register the Company as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

A proposed change in U.S. accounting standards for leases could reduce the overall demand to lease our properties.

The existing accounting standards for leases require lessees to classify their leases as either capital or operating leases. Under a capital lease, both the leased asset, which represents the tenant’s right to use the property, and the contractual lease obligation are recorded on the tenant’s balance sheet if one of the following criteria are met: (i) the lease transfers ownership of the property to the lessee by the end of the lease term; (ii) the lease contains a bargain purchase option; (iii) the non-cancellable lease term is more than 75% of the useful life of the asset; or (iv) the present value of the minimum lease payments equals 90% or more of the leased property’s fair value. If the terms of the lease do not meet these criteria, the lease is considered an operating lease, and no leased asset or contractual lease obligation is recorded by the tenant.

Recently, the U.S. Financial Accounting Standards Board, or the FASB, and the International Accounting Standards Board, or IASB, initiated a joint project to develop new guidelines to lease accounting. The FASB and IASB, or collectively, the Boards, recently issued an Exposure Draft on May 16, 2013, which propose substantial changes to the current lease accounting standards, primarily by eliminating the concept of operating lease accounting. As a result, a lease asset and obligation would be recorded on the tenant’s balance sheet for all lease arrangements. In addition, the Exposure Draft could impact the method in which contractual lease payments would be recorded. In order to mitigate the effect of the proposed lease accounting, tenants may seek to negotiate certain terms within new lease arrangements or modify terms in existing lease arrangements, such as shorter lease terms, which would generally have less impact on tenant balance sheets. Also, tenants may reassess their lease-versus-buy strategies. This could result in a greater renewal risk, a delay in investing proceeds from our Offering or shorter lease terms, all of which may negatively impact our operations and our ability to pay distributions to you.

If our stockholders do not agree with the decisions of our board of directors, our stockholders only have limited control over changes in our policies and operations and may not be able to change such policies and operations.

Our board of directors determines our major policies, including our policies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or

revise these and other policies without a vote of the stockholders except to the extent that such policies are set forth in our charter. Under the Maryland General Corporation Law and our charter, our stockholders have a right to vote only on the following:

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the election or removal of directors;

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any amendment of our charter (including a change in our investment objectives), except that our board of directors may amend our charter without stockholder approval to (a) increase or decrease the aggregate number of our shares or the number of shares of any class or series that we have the authority to issue, (b) effect certain reverse stock splits, and (c) change our name or the name or other designation or the par value of any class or series of our stock and the aggregate par value of our stock;

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our liquidation or dissolution; and

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certain mergers, reorganizations of our company, consolidations or sales or other dispositions of all or substantially all our assets, as provided in our charter and under Maryland law.

All other matters are subject to the discretion of our board of directors.

Our board of directors may change our investment policies without stockholder approval, which could alter the nature of our stockholders’ investments.

Our charter requires that our independent directors review our investment policies at least annually to determine that the policies we are following are in the best interest of our stockholders. These policies may change over time. The methods of implementing our investment policies also may vary, as new real estate development trends emerge and new investment techniques are developed. Except to the extent that policies and investment limitations are included in our charter, our investment policies, the methods for their implementation, and our other objectives, policies and procedures may be altered by our board of directors without the approval of our stockholders. As a result, the nature of stockholders’ investment could change without their consent.

Because of our holding company structure, we depend on our Operating Partnership and its subsidiaries for cash flow and we will be structurally subordinated in right of payment to the obligations of such operating subsidiary and its subsidiaries.

We are a holding company with no business operations of our own. Our only significant asset is and will be the general partnership interests of our Operating Partnership. We conduct all of our business operations through our Operating Partnership. Accordingly, our only source of cash to pay our obligations is distributions from our Operating Partnership and its subsidiaries of their net earnings and cash flows. We cannot assure our stockholders that our Operating Partnership or its subsidiaries will be able to, or be permitted to, make distributions to us that will enable us to make distributions to our stockholders from cash flows from operations. Each of our Operating Partnership’s subsidiaries is a distinct legal entity and under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from such entities. In addition, because we are a holding company, stockholders’ claims will be structurally subordinated to all existing and future liabilities and obligations of our Operating Partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our Operating Partnership and its subsidiaries will be able to satisfy stockholders’ claims only after all of our and our Operating Partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.

Our stockholders are limited in their ability to sell their shares pursuant to our share repurchase program and may have to hold their shares for an indefinite period of time.

Our board of directors may reject any request for repurchase of shares, suspend (in whole or in part) the share repurchase program at any time and from time to time upon notice to our stockholders and amend, suspend, reduce, terminate or otherwise change our share repurchase program at any time upon 30 days’ notice to our

stockholders for any reason it deems appropriate. Because we only repurchase shares on a monthly basis, depending upon when during the month our board of directors makes this determination, it is possible that our stockholders would not have any additional opportunities to have their shares repurchased under the prior terms of the program, or at all, upon receipt of the notice. In addition, the share repurchase program includes numerous restrictions that would limit stockholders’ ability to sell their shares. Generally, stockholders must have held their shares for at least one year in order to participate in our share repurchase program, subject to the right of our board of directors to waive such holding requirement in the event of the death or qualifying disability of a stockholder, or other involuntary exigent circumstances. Subject to funds being available, the purchase price for shares repurchased under our share repurchase program will be as set forth below until we establish an estimated value of our shares (unless the shares are being redeemed in connection with a stockholder’s death or qualifying disability). We do not currently anticipate obtaining appraisals for our investments (other than investments in transactions with affiliates) and, accordingly, the estimated value of our investments should not be viewed as an accurate reflection of the fair market value of our investments nor will they represent the amount of net proceeds that would result from an immediate sale of our assets. We expect to begin establishing an estimated value of our shares based on the value of our real estate and real estate-related investments beginning 18 months after the close of the Offering. We will retain persons independent of us and our Advisor to prepare the estimated value of our shares. Prior to establishing the estimated value of our shares and unless the shares are being redeemed in connection with a stockholder’s death or qualifying disability, the price per share that we will pay to repurchase shares of our common stock will be as follows: (a) for stockholders who have continuously held their shares of our common stock for at least one year, the price will be 92.5% of the amount paid for each such share, (b) for stockholders who have continuously held their shares of our common stock for at least two years, the price will be 95.0% of the amount paid for each such share, (c) for stockholders who have continuously held their shares of our common stock for at least three years, the price will be 97.5% of the amount paid for each such share, and (d) for stockholders who have held their shares of our common stock for at least four years, the price will be 100.0% of the amount paid for each such share (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock). These limits might prevent us from accommodating all repurchase requests made in any year. These restrictions severely limit our stockholders’ ability to sell their shares should they require liquidity, and limit their ability to recover the value such stockholders invested or the fair market value of their shares. As a result, stockholders should not rely on our share repurchase program to provide them with liquidity.

Our stockholders’ interest in us will be diluted if we issue additional shares.

Existing stockholders and potential investors in the Offering do not have preemptive rights to any shares issued by us in the future. Our charter currently has authorized 350,000,000 shares of stock, of which 300,000,000 shares are designated as common stock and 50,000,000 are designated as preferred stock. Subject to any limitations set forth under Maryland law, our board of directors may increase or decrease the aggregate number of authorized shares of stock, increase or decrease the number of shares of any class or series of stock designated, or reclassify any unissued shares without the necessity of obtaining stockholder approval. All such shares may be issued in the discretion of our board of directors except that issuance of preferred stock must also be approved by a majority of our independent directors not otherwise interested in the transaction, who will have access, at our expense, to our legal counsel or to independent legal counsel. Further, we have adopted the Carter Validus Mission Critical REIT, Inc. 2010 Restricted Share Plan, or the Incentive Plan, pursuant to which we have the power and authority to grant restricted or deferred stock awards to persons eligible under the Incentive Plan. We have authorized and reserved 300,000 shares of our common stock for issuance under the Incentive Plan and have granted 3,000 restricted shares of common stock to each of our independent directors in connection with such director’s initial election to our board of directors, and 3,000 shares in connection with such director’s subsequent election or re-election, as applicable. Existing stockholders and investors purchasing shares in the Offering likely will suffer dilution of their equity investment in us, if we:

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sell shares pursuant to the Offering or sell additional shares in the future, including those issued pursuant to our distribution reinvestment plan;

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sell securities that are convertible into shares of our common stock;

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issue shares of our common stock in a private offering of securities to institutional investors;

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issue additional restricted share awards to our directors;

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issue shares to our Advisor or its successors or assigns, in payment of an outstanding fee obligation as set forth under our advisory agreement; or

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issue shares of our common stock to sellers of properties acquired by us in connection with an exchange of limited partnership interests of our Operating Partnership.

In addition, the partnership agreement for our Operating Partnership contains provisions that would allow, under certain circumstances, other entities, including other programs affiliated with our Advisor and its affiliates, to merge into or cause the exchange or conversion of their interest for interests of our Operating Partnership. Because the limited partnership interests of our Operating Partnership may, in the discretion of our board of directors, be exchanged for shares of our common stock, any merger, exchange or conversion between our Operating Partnership and another entity ultimately could result in the issuance of a substantial number of shares of our common stock, thereby diluting the percentage ownership interest of other stockholders.

If we internalize our management functions, the percentage of our outstanding common stock owned by our stockholders could be reduced, and we could incur other significant costs associated with being self-administered.

In the future, our board of directors may consider internalizing the functions performed for us by our Advisor. The method by which we could internalize these functions could take many forms, including without limitation, acquiring our Advisor. There is no assurance that internalizing our management functions will be beneficial to us and our stockholders. An acquisition of our Advisor’s assets could result in dilution of our stockholders’ interests and could reduce earnings per share and funds from operation per share. Additionally, we may not realize the perceived benefits, we may not be able to properly integrate a new staff of managers and employees or we may not be able to effectively replicate the services provided previously by our Advisor, property manager or their affiliates. Internalization transactions involving the acquisition of advisors or property managers affiliated with entity sponsors have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant amounts of money defending claims, which would reduce the amount of funds available for us to invest in properties or other investments and to pay distributions. All of these factors could have a material adverse effect on our results of operations, financial condition and ability to pay distributions.

Payment of fees and reimbursements to our Advisor, our dealer manager and their affiliates reduces cash available for investment and distribution.

We pay to our Dealer Manager up to 9.75% of our gross offering proceeds in the form of selling commissions and a dealer manager fee, much of which is reallowed to participating broker-dealers. We also reimburse our Advisor and its affiliates for organization and offering expenses it incurs on our behalf, but only to the extent the reimbursement would not cause the selling commissions, the dealer manager fee and the other organization and offering expenses borne by us to exceed 15% of the gross offering proceeds as on the date of the reimbursement. In addition, we pay substantial fees to our Advisor and its affiliates for the services they provide to us. The payment of these fees and the reimbursements of these expenses reduces the amount of cash available for investment in properties or distribution to stockholders.

We may be unable to maintain cash distributions or increase distributions over time.

There are many factors that can affect the availability and timing of cash distributions to our stockholders. Distributions are based principally on cash available from our operations. The amount of cash available for distributions is affected by many factors, such as our ability to buy properties as offering proceeds become

available, rental income from such properties and our operating expense levels, as well as many other variables. Actual cash available for distributions may vary substantially from estimates. With no prior operating history, we cannot assure our stockholders that we will be able to maintain our current level of distributions or that distributions will increase over time. We also cannot give any assurance that rents from the properties will increase, that securities we may buy will increase in value or provide constant or increased distributions over time, or that future acquisitions of real properties, mortgage, bridge or mezzanine loans or any investments in securities will increase our cash available for distributions to stockholders. Our actual results may differ significantly from the assumptions used by our board of directors in establishing the distribution rate to stockholders. We may not have sufficient cash from operations to make a distribution required to maintain our REIT status. We may make distributions from the proceeds of the Offering or from borrowings in anticipation of future cash flow. Any such distributions will constitute a return of capital and may reduce the amount of capital we ultimately invest in properties and negatively impact the value of our stockholders’ investment.

General Risks Related to Investments in Real Estate

Our operating results will be affected by economic and regulatory changes that have an adverse impact on the real estate market in general, which may prevent us from being profitable or from realizing growth in the value of our real estate properties.

Our operating results are subject to risks generally incident to the ownership of real estate, including:

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changes in general economic or local conditions;

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changes in supply of or demand for similar or competing properties in an area;

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changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive;

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changes in tax, real estate, environmental and zoning laws; and

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periods of high interest rates and tight money supply.

These and other reasons may prevent us from being profitable or from realizing growth or maintaining the value of our real estate properties.

If a tenant declares bankruptcy, we may be unable to collect balances due under relevant leases, which would reduce our cash flow from operations and the amount available for distributions to our stockholders.

Any of our tenants, or any guarantor of a tenant’s lease obligations, could be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States. Such a bankruptcy filing would bar all efforts by us to collect pre-bankruptcy debts from these entities or their properties, unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be paid currently. If a lease is assumed, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. This claim could be paid only if funds were available, and then only in the same percentage as that realized on other unsecured claims.

A tenant or a lease guarantor in bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums. Such an event could cause a decrease or cessation of rental payments that would mean a reduction in our cash flow and the amount available for distributions to our stockholders. In the event of a bankruptcy, we cannot assure our stockholders that the tenant or its trustee will assume our lease. If a given lease, or guaranty of a lease, is not assumed, our cash flow and the amounts available for distributions to our stockholders may be adversely affected.

If a sale-leaseback transaction is re-characterized in a tenant’s bankruptcy proceeding, our financial condition could be adversely affected.

We may enter into sale-leaseback transactions, whereby we would purchase a property and then lease the same property back to the person from whom we purchased it. In the event of the bankruptcy of a tenant, a transaction structured as a sale-leaseback may be re-characterized as either a financing or a joint venture, either of which outcomes could adversely affect our business. If the sale-leaseback were re-characterized as a financing, we might not be considered the owner of the property, and as a result would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms, and prevented from foreclosing our lien on the property. If the sale-leaseback were re-characterized as a joint venture, our lessee and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property. Either of these outcomes could adversely affect our cash flow and the amount available for distributions to our stockholders.

Properties that have vacancies for a significant period of time could be difficult to sell, which could diminish the return on our stockholders’ investment.

A property may incur vacancies either by the continued default of tenants under their leases or the expiration of tenant leases. If vacancies continue for a long period of time, we may suffer reduced revenues, resulting in less cash to be distributed to stockholders. In addition, because properties’ market values depend principally upon the value of the properties’ leases, the resale value of properties with prolonged vacancies could suffer, which could further reduce our stockholders’ return.

We may obtain only limited warranties when we purchase a property and would have only limited recourse if our due diligence did not identify any issues that lower the value of our property.

The seller of a property often sells such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all our invested capital in the property as well as the loss of rental income from that property.

We may be unable to secure funds for future tenant improvements or capital needs, which could adversely impact our ability to pay cash distributions to our stockholders.

When tenants do not renew their leases or otherwise vacate their space, in order to attract replacement tenants, we expect that we will be required to expend substantial funds for tenant improvements and tenant refurbishments to the vacated space. In addition, although we expect that our leases with tenants will require tenants to pay routine property maintenance costs, we will likely be responsible for any major structural repairs, such as repairs to the foundation, exterior walls and rooftops. We will use substantially all of the Offering’s gross proceeds to buy real estate and pay various fees and expenses. Accordingly, if we need additional capital in the future to improve or maintain our properties or for any other reason, we will have to obtain financing from other sources, such as cash flow from operations, borrowings, property sales or future equity offerings. These sources of funding may not be available on attractive terms or at all. If we cannot procure additional funding for capital improvements, our investments may generate lower cash flows or decline in value, or both.

Our inability to sell a property when we desire to do so could adversely impact our ability to pay cash distributions to our stockholders.

The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or at all, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property.

We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure our stockholders that we will have funds available to correct such defects or to make such improvements. Moreover, in acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These provisions would restrict our ability to sell a property.

We may not be able to sell our properties at a price equal to, or greater than, the price for which we purchased such properties, which may lead to a decrease in the value of our assets and a reduction in the value of our stockholders’ shares.

Some of our leases will not contain rental increases over time, or the rental increases may be less than fair market rate at a future point in time. Therefore, the value of the property to a potential purchaser may not increase over time, which may restrict our ability to sell a property, or if we are able to sell such property, may lead to a sale price less than the price that we paid to purchase the property.

We may acquire or finance properties with lock-out provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties.

A lock-out provision is a provision that prohibits the prepayment of a loan during a specified period of time. Lock-out provisions could materially restrict us from selling or otherwise disposing of or refinancing properties. These provisions would affect our ability to turn our investments into cash and thus affect cash available for distributions to our stockholders. Lock-out provisions may prohibit us from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties. Lock-out provisions could impair our ability to take other actions during the lock-out period that could be in the best interests of our stockholders and, therefore, may have an adverse impact on the value of the shares, relative to the value that would result if the lock-out provisions did not exist. In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders.

Rising expenses could reduce cash flow and funds available for future acquisitions or distributions to our stockholders.

Our properties and any other properties that we buy in the future will be subject to operating risks common to real estate in general, any or all of which may negatively affect us. If any property is not fully occupied or if rents are being paid in an amount that is insufficient to cover operating expenses, we could be required to expend funds with respect to that property for operating expenses. The properties will be subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses. While we expect that many of our properties will be leased on a triple-net-lease basis or will require the tenants to pay all or a portion of such expenses, renewals of leases or future leases may not be negotiated on that basis, in which event we may have to pay those costs. If we are unable to lease properties on a triple-net-lease basis or on a basis requiring the tenants to pay all or some of such expenses, or if tenants fail to pay required tax, utility and other impositions, we could be required to pay those costs, which could adversely affect funds available for future acquisitions or cash available for distributions.

If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits.

We carry comprehensive general liability coverage and umbrella liability coverage on all our properties with limits of liability which we deem adequate to insure against liability claims and provide for the costs of defense. Similarly, we are insured against the risk of direct physical damage in amounts we estimate to be adequate to reimburse us on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the rehabilitation period. Material losses may occur in excess of insurance proceeds with respect to any property, as insurance may not be sufficient to fund the losses. However, there are types of losses, generally of a catastrophic nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases have begun to insist that commercial property owners purchase specific coverage against terrorism as a condition for providing mortgage loans. It is uncertain whether such insurance policies will be available, or available at reasonable cost, which could inhibit our ability to finance or refinance our potential properties. In these instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We may not have adequate, or any, coverage for such losses. The Terrorism Risk Insurance Act of 2002 is designed for a sharing of terrorism losses between insurance companies and the federal government, and extends the federal terrorism insurance backstop through 2014. We cannot be certain how this act will impact us or what additional cost to us, if any, could result. If such an event damaged or destroyed one or more of our properties, we could lose both our invested capital and anticipated profits from such property.

Real estate-related taxes may increase and if these increases are not passed on to tenants, our income will be reduced.

Some local real property tax assessors may seek to reassess some of our properties as a result of our acquisition of the property. From time to time our property taxes may increase as property values or assessment rates change or for other reasons deemed relevant by the assessors. An increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property. Although some tenant leases may permit us to pass through such tax increases to the tenants for payment, there is no assurance that renewal leases or future leases will be negotiated on the same basis. Increases not passed through to tenants will adversely affect our income, cash available for distributions, and the amount of distributions to our stockholders.

Covenants, conditions and restrictions may restrict our ability to operate a property.

Some of our properties may be contiguous to other parcels of real property, comprising part of the same commercial center. In connection with such properties, there are significant covenants, conditions and restrictions, known as “CC&Rs,” restricting the operation of such properties and any improvements on such properties, and related to granting easements on such properties. Moreover, the operation and management of the contiguous properties may impact such properties. Compliance with CC&Rs may adversely affect our operating costs and reduce the amount of funds that we have available to pay distributions.

Our operating results may be negatively affected by potential development and construction delays and resultant increased costs and risks.

While we do not currently intend to do so, we may use proceeds from the Offering to acquire and develop properties upon which we will construct improvements. In such event, we will be subject to uncertainties associated with re-zoning for development, environmental concerns of governmental entities and/or community groups, and our builder’s ability to build in conformity with plans, specifications, budgeted costs, and timetables.

If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder’s performance also may be affected or delayed by conditions beyond the builder’s control. Delays in completion of construction could also give tenants the right to terminate preconstruction leases. We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. These and other such factors can result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and our return on our investment could suffer.

While we do not currently intend to do so, we may invest in unimproved real property, subject to the limitations on investments in unimproved real property contained in our charter. For purposes of this paragraph, “unimproved real property” is real property which has not been acquired for the purpose of producing rental or other operating income, has no development or construction in process and on which no construction or development is planned in good faith to commence within one year. Returns from development of unimproved properties are also subject to risks associated with re-zoning the land for development and environmental concerns of governmental entities and/or community groups. Although we intend to limit any investment in unimproved property to property we intend to develop, our stockholders’ investment nevertheless is subject to the risks associated with investments in unimproved real property.

Competition with third parties in acquiring properties and other investments may reduce our profitability and the return on our stockholders’ investment.

We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, other REITs, real estate limited partnerships, and other entities engaged in real estate investment activities, many of which have greater resources than we do. Larger REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investments may increase. Any such increase would result in increased demand for these assets and therefore increased prices paid for them. If we pay higher prices for properties and other investments, our profitability will be reduced and our stockholders may experience a lower return on their investment.

We will be subject to additional risks of our joint venture partner or partners when we enter into a joint venture, which could reduce the value of our investment.

We have entered into, and may continue to enter into additional joint ventures with other real estate groups. The success of a particular joint venture may be limited if our joint venture partner becomes bankrupt or otherwise is unable to perform its obligations in accordance with the terms of the particular joint venture arrangement. The joint venture partner may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. In addition, if we have a dispute with our joint venture partner, we could incur additional expenses and require additional time and resources from our Advisor, each of which could adversely affect our operating results and our stockholders’ investment. In addition, we may assume liabilities related to the joint venture that exceed the percentage of our investment in the joint venture.

Our properties face competition that may affect tenants’ willingness to pay the amount of rent requested by us and the amount of rent paid to us may affect the cash available for distributions and the amount of distributions.

There will be numerous other properties within the market area of each of our properties that will compete with us for tenants. The number of competitive properties could have a material effect on our ability to rent space at our properties and the amount of rents charged. We could be adversely affected if additional competitive

properties are built in locations competitive with our properties, causing increased competition for customer traffic and creditworthy tenants. This could result in decreased cash flow from tenants and may require us to make capital improvements to properties that we would not have otherwise made, thus affecting cash available for distributions and the amount available for distributions to our stockholders.

Delays in acquisitions of properties may have an adverse effect on our stockholders’ investment.

There may be a substantial period of time before all of the proceeds of the Offering are invested. Delays we encounter in the selection, acquisition and/or development of properties could adversely affect our stockholders’ returns. Where properties are acquired prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Therefore, our stockholders could suffer delays in the payment of cash distributions attributable to those particular properties.

Costs of complying with governmental laws and regulations, including those relating to environmental matters, may adversely affect our income and the cash available for any distributions.

All real properties and the operations conducted on real properties are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Environmental laws and regulations may impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. This liability could be substantial. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such property as collateral for future borrowings.

Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties, may affect our properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and that may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we must pay will reduce our ability to make distributions and may reduce the value of our stockholders’ investment.

State and federal laws in this area are constantly evolving, and we intend to monitor these laws and take commercially reasonable steps to protect ourselves from the impact of these laws, including obtaining environmental assessments of most properties that we acquire; however, we will not obtain an independent third-party environmental assessment for every property we acquire. In addition, any such assessment that we do obtain may not reveal all environmental liabilities or that a prior owner of a property did not create a material environmental condition not known to us. The cost of defending against claims of liability, of compliance with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims would materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution to our stockholders.

If we sell properties by providing financing to purchasers, defaults by the purchasers would adversely affect our cash flows.

If we decide to sell any of our properties, we intend to use our best efforts to sell them for cash. However, in some instances we may sell our properties by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk that the purchaser may default, which could negatively impact our cash

distributions to stockholders. Even in the absence of a purchaser default, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price, and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to pay cash distributions to our stockholders.

Our recovery of an investment in a mortgage, bridge or mezzanine loan that has defaulted may be limited.

There is no guarantee that the mortgage, loan or deed of trust securing an investment will, following a default, permit us to recover the original investment and interest that would have been received absent a default. The security provided by a mortgage, deed of trust or loan is directly related to the difference between the amount owed and the appraised market value of the property. Although we intend to rely on a current real estate appraisal when we make the investment, the value of the property is affected by factors outside our control, including general fluctuations in the real estate market, rezoning, neighborhood changes, highway relocations and failure by the borrower to maintain the property. In addition, we may incur the costs of litigation in our efforts to enforce our rights under defaulted loans.

Our costs associated with complying with the Americans with Disabilities Act of 1990 may affect cash available for distributions.

Our properties are subject to the Americans with Disabilities Act of 1990, or the Disabilities Act. Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. We will attempt to acquire properties that comply with the Disabilities Act or place the burden on the seller or other third party, such as a tenant, to ensure compliance with the Disabilities Act. However, we cannot assure our stockholders that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for Disabilities Act compliance may affect cash available for distributions and the amount of distributions to our stockholders.

Risks Associated with Investments in the Medical Property Sector

Our real estate investments may be concentrated in medical facilities, making us more vulnerable economically than if our investments were diversified.

We are subject to risks inherent in concentrating investments in real estate. These risks resulting from a lack of diversification become even greater as a result of our business strategy to invest to a substantial degree in medical facilities. A further downturn in the commercial real estate industry generally could significantly adversely affect the value of our properties. A downturn in the healthcare industry could negatively affect our lessees’ ability to make lease payments to us and our ability to make distributions to our stockholders. These adverse effects could be more pronounced than if we diversified our investments outside of real estate or if our portfolio did not include a concentration in medical facilities.

Certain of our properties may not have efficient alternative uses, so the loss of a tenant may cause us to not be able to find a replacement or cause us to spend considerable capital to adapt the property to an alternative use.

Some of the properties we have acquired or seek to acquire are medical facilities that may only be suitable for similar medical-related tenants. If we or our tenants terminate the leases for these properties or our tenants lose their regulatory authority to operate such properties, we may not be able to locate suitable replacement

tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to adapt the properties to other uses. Any loss of revenues or additional capital expenditures required as a result may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Our medical facilities and tenants may be unable to compete successfully, which could result in lower rent payments, reduce our cash flow from operations and the amounts available for distributions to our stockholders.

The medical facilities we have acquired or seek to acquire may face competition from nearby hospitals and other medical facilities that provide comparable services. Some of those competing facilities are owned by governmental agencies and supported by tax revenues, and others are owned by nonprofit corporations and may be supported to a large extent by endowments and charitable contributions. These types of support are not available to our properties. Similarly, our tenants face competition from other medical practices in nearby hospitals and other medical facilities. Our tenants’ failure to compete successfully with these other practices could adversely affect their ability to make rental payments, which could adversely affect our rental revenues. Further, from time to time and for reasons beyond our control, referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients. This could adversely affect our tenants’ ability to make rental payments, which could adversely affect our rental revenues. Any reduction in rental revenues resulting from the inability of our medical facilities and our tenants to compete successfully may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Reductions in reimbursement from third-party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants and hinder their ability to make rent payments to us.

Sources of revenue for our tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers and health maintenance organizations, among others. Efforts by such payors to reduce healthcare costs have intensified in recent years and will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants. In addition, the healthcare billing rules and regulations are complex, and the failure of any of our tenants to comply with various laws and regulations could jeopardize their ability to continue participating in Medicare, Medicaid and other government sponsored payment programs. Moreover, the state and federal government healthcare programs are subject to reductions by state and federal legislative actions.

In December of 2013, the President signed a budget deal that temporarily delayed a more than 20% reduction in Medicare reimbursements to physicians from January 1, 2014 until April 1, 2014. However, unless Congress acts again to either eliminate or delay the Sustainable Growth Rate reductions that result from the existing statutory methodology, physicians’ Medicare reimbursement will be reduced on April 1, 2014, which may adversely impact our tenants’ ability to make rental payments.

The healthcare industry continues to face various challenges, including increased government and private payor pressure on healthcare providers to control or reduce costs. It is possible that our tenants will continue to experience a shift in payor mix away from fee-for-service payors, resulting in an increase in the percentage of revenues attributable to managed care payors, and general industry trends that include pressures to control healthcare costs. Pressures to control healthcare costs and a shift away from traditional health insurance reimbursement to managed care plans have resulted in an increase in the number of patients whose healthcare coverage is provided under managed care plans, such as health maintenance organizations and preferred provider organizations. In addition, the healthcare legislation passed in 2010 included new payment models with new shared savings programs and demonstration programs that include bundled payment models and payments contingent upon reporting on satisfaction of quality benchmarks. The new payment models will likely change how physicians are paid for services. These changes could have a material adverse effect on the financial

condition of some or all of our tenants in our medical facilities. The financial impact on our tenants could restrict their ability to make rent payments to us, which would have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We face increasing competition for the acquisition of medical facilities, which may impede our ability to make future acquisitions or may increase the cost of these acquisitions.

We compete with many other entities engaged in real estate investment activities for acquisitions of medical facilities, including national, regional and local operators, acquirers and developers of medical facilities. The competition for medical facilities may significantly increase the price we must pay for medical facilities or other assets we seek to acquire and our competitors may succeed in acquiring those properties or assets themselves. In addition, our potential acquisition targets may find our competitors to be more attractive because they may have greater resources, may be willing to pay more for the properties or may have a more compatible operating philosophy. In particular, larger healthcare real estate REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase. This competition will result in increased demand for these assets and therefore increased prices paid for them. Because of an increased interest in single-property acquisitions among tax-motivated individual purchasers, we may pay higher prices if we purchase single properties in comparison with portfolio acquisitions. If we pay higher prices for medical facilities, our business, financial condition and results of operations and our ability to make distributions to our stockholders may be materially and adversely affected.

The healthcare industry is heavily regulated, and new laws or regulations, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of our tenants to make rent payments to us.

The healthcare industry is heavily regulated by federal, state and local governmental bodies. The tenants in our medical facilities generally are subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, and relationships with physicians and other referral sources. Changes in these laws and regulations could negatively affect the ability of our tenants to make lease payments to us and our ability to make distributions to our stockholders. Many of our medical facilities and their tenants may require a license or certificate of need, or CON, to operate. Failure to obtain a license or CON, or loss of a required license or CON, would prevent a facility from operating in the manner intended by the tenant. These events could also materially adversely affect our tenants’ ability to make rent payments to us. State and local laws also may regulate expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction of medical facilities, by requiring a CON or other similar approval. State CON laws are not uniform throughout the United States and are subject to change; therefore, this may adversely impact our tenants’ ability to provide services in different states. We cannot predict the impact of state CON laws on our development of facilities or the operations of our tenants. In addition, state CON laws often materially impact the ability of competitors to enter into the marketplace of our facilities. The repeal of CON laws could allow competitors to freely operate in previously closed markets. This could negatively affect our tenants’ abilities to make current payments to us. In limited circumstances, loss of state licensure or certification or closure of a facility could ultimately result in loss of authority to operate the facility and require new CON authorization to re-institute operations. As a result, a portion of the value of the facility may be reduced, which would adversely impact our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Tenants of our medical facilities are subject to fraud and abuse laws, the violation of which by a tenant may jeopardize the tenant’s ability to make rent payments to us.

There are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from or are in a position to make referrals in connection with government-sponsored healthcare programs, including the Medicare and Medicaid programs. Our lease

arrangements with certain tenants may also be subject to these fraud and abuse laws. These laws include the Federal Anti-Kickback Statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral of any item or service reimbursed by Medicare or Medicaid; the Federal Physician Self-Referral Prohibition, which, subject to specific exceptions, restricts physicians from making referrals for specifically designated health services for which payment may be made under Medicare or Medicaid programs to an entity with which the physician, or an immediate family member, has a financial relationship; the False Claims Act, which prohibits any person from knowingly presenting false or fraudulent claims for payment to the federal government, including claims paid by the Medicare and Medicaid programs; and the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human Services to impose monetary penalties for certain fraudulent acts. Each of these laws includes criminal and/or civil penalties for violations that range from punitive sanctions, damage assessments, penalties, imprisonment, denial of Medicare and Medicaid payments and/or exclusion from the Medicare and Medicaid programs. Certain laws, such as the False Claims Act, allow for individuals to bring whistleblower actions on behalf of the government for violations thereof. Additionally, states in which our medical facilities are located may have similar fraud and abuse laws. Investigation by a federal or state governmental body for violation of fraud and abuse laws or imposition of any of these penalties upon one of our tenants could jeopardize that tenant’s ability to operate or to make rent payments, which may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Adverse trends in healthcare provider operations may negatively affect our lease revenues and our ability to make distributions to our stockholders.

The healthcare industry is currently experiencing changes in the demand for and methods of delivering healthcare services; changes in third party reimbursement policies; significant unused capacity in certain areas, which has created substantial competition for patients among healthcare providers in those areas; continuing pressure by private and governmental payors to reduce payments to providers of services; increased scrutiny of billing, referral and other practices by federal and state authorities; changes in federal and state healthcare program payment models; and increased emphasis on compliance with privacy and security requirements related to personal health information. These factors may adversely affect the economic performance of some or all of our tenants and, in turn, our lease revenues and our ability to make distributions to our stockholders.

Tenants of our medical facilities may be subject to significant legal actions that could subject them to increased operating costs and substantial uninsured liabilities, which may affect their ability to pay their rent payments to us.

As is typical in the healthcare industry, certain types of tenants of our medical facilities may often become subject to claims that their services have resulted in patient injury or other adverse effects. Many of these tenants may have experienced an increasing trend in the frequency and severity of professional liability and general liability insurance claims and litigation asserted against them. The insurance coverage maintained by these tenants may not cover all claims made against them nor continue to be available at a reasonable cost, if at all. In some states, insurance coverage for the risk of punitive damages arising from professional liability and general liability claims and/or litigation may not, in certain cases, be available to these tenants due to state law prohibitions or limitations of availability. As a result, these types of tenants of our medical facilities operating in these states may be liable for punitive damage awards that are either not covered or are in excess of their insurance policy limits. We also believe that there has been, and will continue to be, an increase in governmental investigations of certain healthcare providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Insurance is not available to cover such losses. Any adverse determination in a legal proceeding or governmental investigation, whether currently asserted or arising in the future, could have a material adverse effect on a tenant’s financial condition. If a tenant is unable to obtain or maintain insurance coverage, if judgments are obtained in excess of the insurance coverage, if a tenant is required to pay uninsured punitive damages, or if a tenant is subject to an uninsurable government

enforcement action, the tenant could be exposed to substantial additional liabilities, which may affect the tenant’s ability to pay rent, which in turn could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Recently enacted comprehensive healthcare reform legislation, the effects of which are not yet fully known, could materially and adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

On March 23, 2010, the President signed into law the Patient Protection and Affordable Care Act of 2010, or the Patient Protection and Affordable Care Act, and on March 30, 2010, the President signed into law the Health Care and Education Reconciliation Act of 2010, or the Reconciliation Act, which in part modified the Patient Protection and Affordable Care Act. Together, the two acts serve as the primary vehicle for comprehensive healthcare reform in the U.S. The acts are intended to reduce the number of individuals in the U.S. without health insurance and effect significant other changes to the ways in which healthcare is organized, delivered and reimbursed. Included with the legislation is a limitation on physician-owned hospitals from expanding, unless the facility satisfies very narrow federal exceptions to this limitation. Therefore, if our tenants are physicians that own and refer to a hospital, the hospital would be limited in its operations and expansion potential, which may limit the hospital’s services and resulting revenues and may impact the owner’s ability to make rental payments. The legislation will become effective through a phased approach, beginning in 2010 and concluding in 2018. On June 28, 2012, the United States Supreme Court upheld the individual mandate under the healthcare reform legislation, although substantially limiting the legislation’s expansion of Medicaid. At this time, the effects of healthcare reform and its impact on our properties are not yet fully known but could materially and adversely affect our business, financial condition, results of operations and ability to pay distributions to our stockholders.

Risks Associated with Investments in the Data Center Property Sector

Our data center properties depend upon the technology industry and a reduction in the demand for technology-related real estate could adversely impact our ability to find or keep tenants for our data center properties, which would adversely affect our results of operations.

A portion of our portfolio of properties consists of technology-related real estate. A decline in the technology industry or a decrease in the adoption of data center space for corporate enterprises could lead to a decrease in the demand for technology-related real estate, which may have a greater adverse effect on our business and financial condition than if we owned a portfolio with a more diversified tenant base. We are susceptible to adverse developments in the corporate and institutional data center and broader technology industries (such as business layoffs or downsizing, industry slowdowns, relocations of businesses, costs of complying with government regulations or increased regulation and other factors) and the technology-related real estate market (such as oversupply of or reduced demand for space). In addition, the rapid development of new technologies or the adoption of new industry standards could render many of our tenants’ current products and services obsolete or unmarketable and contribute to a downturn in their businesses, thereby increasing the likelihood that they default under their leases, become insolvent or file for bankruptcy.

Our data center properties may not be suitable for lease to certain data center, technology or office tenants without significant expenditures or renovations.

Because many of our technology-related properties contain and will continue to contain extensive tenant improvements installed at our tenants’ expense, they may be better suited for a specific corporate enterprise data center user or technology industry tenant and could require modification in order for us to re-lease vacant space to another corporate enterprise data center user or technology industry tenant. For the same reason, our properties also may not be suitable for lease to traditional office tenants without significant expenditures or renovations.

Our tenants may choose to develop new data centers or expand their existing data centers, which could result in the loss of one or more key tenants or reduce demand for our newly developed data centers.

Although our tenants generally enter into long-term leases with us and make considerable investments in housing their servers in our facilities, we cannot assure our stockholders that our larger tenants will not choose to develop new data centers or expand any existing data centers of their own. In the event that any of our key tenants were to do so, it could result in a loss of business to us or put pressure on our pricing. If we lose a tenant, there is no guarantee that we would be able to replace that tenant at a competitive rate or at all.

Our data center infrastructure may become obsolete and we may not be able to upgrade our power and cooling systems cost-effectively or at all.

The markets for data centers, as well as the industries in which data center tenants operate, are characterized by rapidly changing technology, evolving industry standards, frequent new service introductions, shifting distribution channels and changing tenant demands. The data center infrastructure in some of the data centers that we have acquired or may acquire in the future may become obsolete due to the development of new systems to deliver power to or eliminate heat from the servers we will house. Additionally, the data center infrastructure in some of the data centers that we will cure could become obsolete as a result of the development of new server technology that does not require the levels of critical load and heat removal that such facilities may be designed to provide and could, possibly, be run less expensively on a different platform. In addition, the power and cooling systems in data centers are difficult and expensive to upgrade. Accordingly, we may not be able to efficiently upgrade or change these systems in some of our data centers to meet new demands without incurring significant costs that we may not be able to pass on to our tenants. The obsolescence of the power and cooling systems in such data centers could have a material negative impact on our business.

Risks Associated with Debt Financing and Investments

We have incurred, and expect to continue to incur, mortgage indebtedness and other borrowings, which could adversely impact our stockholders’ investment if the value of the property securing the debt falls or if we are forced to refinance the debt during adverse economic conditions.

We expect that in most instances, we will continue to acquire real properties by using either existing financing or borrowing new funds. In addition, we have incurred and may continue to incur mortgage debt and pledge all or some of our real properties as security for that debt to obtain funds to acquire additional real properties. We may borrow if we need funds to satisfy the REIT tax qualification requirement that we distribute at least 90% of our annual REIT taxable income to our stockholders. We also may borrow if we otherwise deem it necessary or advisable to assure that we maintain our qualification as a REIT.

We believe that utilizing borrowing is consistent with our investment objective of maximizing the return to stockholders. There is no limitation on the amount we may borrow against any single improved property. Our charter provides that, until such time as shares of our common stock are listed on a national securities exchange or traded in the over-the-counter market, our borrowings may not exceed 300% of our total “net assets” as of the date of any borrowing (which is the maximum level of indebtedness permitted under the NASAA REIT Guidelines absent a satisfactory showing that a higher level is appropriate), which is generally expected to be approximately 75% of the cost of our investments; however, we may exceed that limit if approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for exceeding such limit. This charter limitation, however, does not apply to individual real estate assets or investments. In addition, our board of directors has adopted investment policies that prohibit us from borrowing, following the completion of the Offering, in excess of 50% of the greater of cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets, unless borrowing a greater amount is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for the excess; provided, however, that this policy

limitation does not apply to individual real estate assets or investments. At the date of acquisition of each asset, we anticipate that the cost of investment for such asset will be substantially similar to its fair market value, which will enable us to comply with the limitations set forth in our charter and the NASAA REIT Guidelines. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limitations. We expect that from time to time during the period of the Offering we will seek independent director approval of borrowings in excess of these limitations since we are in the process of raising our equity capital to acquire our portfolio. As a result, we expect that our debt levels will be higher until we have invested most of our capital, which may cause us to incur higher interest charges, make higher debt service payments or be subject to restrictive covenants.

If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on a property, then the amount available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of our stockholders’ investment. For U.S. federal income tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. In such event, we may be unable to pay the amount of distributions required in order to maintain our REIT status. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. When we provide a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected which could result in our losing our REIT status and would result in a decrease in the value of our stockholders’ investment.

The current state of debt markets could have a material adverse impact on our earnings and financial condition.

The domestic and international commercial real estate debt markets are currently experiencing volatility as a result of certain factors including the tightening of underwriting standards by lenders and credit rating agencies. This is resulting in lenders increasing the cost for debt financing. Should the overall cost of borrowings increase, either by increases in the index rates or by increases in lender spreads, we will need to factor such increases into the economics of future acquisitions. This may result in future acquisitions generating lower overall economic returns and potentially reducing future cash flow available for distribution. If these disruptions in the debt markets persist, our ability to borrow monies to finance the purchase of, or other activities related to, real estate assets will be negatively impacted. If we are unable to borrow monies on terms and conditions that we find acceptable, we likely will have to reduce the number of properties we can purchase, and the return on the properties we do purchase may be lower. In addition, we may find it difficult, costly or impossible to refinance indebtedness which is maturing.

In addition, the state of the debt markets could have an impact on the overall amount of capital investing in real estate, which may result in price or value decreases of real estate assets. Although this may benefit us for future acquisitions, it could negatively impact the current value of our existing assets.

High mortgage rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make.

By placing mortgage debt on properties, we run the risk of being unable to refinance the properties when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when the properties are refinanced, we may not be able to finance the properties and our income could be reduced. If any

of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital by issuing more stock or by borrowing more money.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.

In connection with providing us financing, certain of our lenders have imposed restrictions on us that affect our distribution, investment and operating policies, or our ability to incur additional debt. Loan documents we have entered or may enter into may contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage or replace Carter/Validus Advisors, LLC as our advisor. These or other limitations may adversely affect our flexibility and our ability to achieve our investment and operating objectives. Additionally, such restrictions could make it difficult for us to satisfy the requirements necessary to maintain our qualification as a REIT for U.S. federal income tax purposes.

Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to pay distributions to our stockholders.

As of December 31, 2013, we had $256,177,000 of fixed interest rate debt outstanding, of which $119,128,000 were fixed through the use of interest rate swaps. As of December 31, 2013, we had $97,000,000 of variable rate debt outstanding. As of December 31, 2013, our weighted average interest rate was 3.98%. Increases in interest rates may increase our interest costs if we obtain variable rate debt, which could reduce our cash flows and our ability to pay distributions to our stockholders. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times that may not permit realization of the maximum return on such investments.

We may invest in collateralized mortgage-backed securities, or CMBS, which may increase our exposure to credit and interest rate risk.

We may invest in CMBS, which may increase our exposure to credit and interest rate risk. We have not adopted, and do not expect to adopt, any formal policies or procedures designed to manage risks associated with our investments in CMBS. In this context, credit risk is the risk that borrowers will default on the mortgages underlying the CMBS. We intend to manage this risk by investing in CMBS guaranteed by U.S. government agencies, such as the Government National Mortgage Association (GNMA), or U.S. government sponsored enterprises, such as the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC). Interest rate risk occurs as prevailing market interest rates change relative to the current yield on the CMBS. For example, when interest rates fall, borrowers are more likely to prepay their existing mortgages to take advantage of the lower cost of financing. As prepayments occur, principal is returned to the holders of the CMBS sooner than expected, thereby lowering the effective yield on the investment. On the other hand, when interest rates rise, borrowers are more likely to maintain their existing mortgages. As a result, prepayments decrease, thereby extending the average maturity of the mortgages underlying the CMBS. We intend to manage interest rate risk by purchasing CMBS offered in tranches, or with sinking fund features, that are designed to match our investment objectives. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to pay distributions to our stockholders will be adversely affected.

Any real estate debt security that we originate or purchase is subject to the risks of delinquency and foreclosure.

We may originate and purchase real estate debt securities, which are subject to risks of delinquency and foreclosure and risks of loss. Typically, we will not have recourse to the personal assets of our borrowers. The ability of a borrower to repay a real estate debt security secured by an income-producing property depends primarily upon the successful operation of the property, rather than upon the existence of independent income or

assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the real estate debt security may be impaired. A property’s net operating income can be affected by, among other things:

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increased costs, added costs imposed by franchisors for improvements or operating changes required, from time to time, under the franchise agreements;

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property management decisions;

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property location and condition;

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competition from comparable types of properties;

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changes in specific industry segments;

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declines in regional or local real estate values, or occupancy rates; and

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increases in interest rates, real estate tax rates and other operating expenses.

We bear the risks of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the real estate debt security, which could have a material adverse effect on our cash flow from operations and limit amounts available for distribution to our stockholders. In the event of the bankruptcy of a real estate debt security borrower, the real estate debt security to that borrower will be deemed to be collateralized only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the real estate debt security will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law. Foreclosure of a real estate debt security can be an expensive and lengthy process that could have a substantial negative effect on our anticipated return on the foreclosed real estate debt security. We also may be forced to foreclose on certain properties, be unable to sell these properties and be forced to incur substantial expenses to improve operations at the property.

U.S. Federal Income Tax Risks

Failure to maintain our qualification as a REIT would adversely affect our operations and our ability to make distributions.

We have qualified and elected to be taxed as a REIT for federal income tax purposes. In order for us to maintain our qualification as a REIT, we must satisfy certain requirements set forth in the Internal Revenue Code and Treasury Regulations and various factual matters and circumstances that are not entirely within our control. We intend to structure our activities in a manner designed to satisfy all of these requirements. However, if certain of our operations were to be recharacterized by the IRS, such recharacterization could jeopardize our ability to satisfy all of the requirements for qualification as a REIT. Morris, Manning & Martin, LLP, our tax counsel, has rendered its opinion that we will qualify as a REIT, based upon our representations as to the manner in which we are and will be owned, invest in assets and operate, among other things. However, our ability to maintain our qualification as a REIT will depend upon our ability to meet, through investments, actual operating results, distributions and satisfaction of the various tests imposed by the Internal Revenue Code. Morris, Manning & Martin, LLP will not review these operating results or compliance with the qualification standards on an ongoing basis. This means that we may fail to satisfy the REIT requirements in the future. Also, this opinion represents Morris, Manning & Martin, LLP’s legal judgment based on the law in effect as of the date of the prospectus for our initial public offering became effective. Morris, Manning & Martin, LLP’s opinion is not binding on the IRS or the courts and we will not apply for a ruling from the IRS regarding our status as a REIT. Future legislative, judicial or administrative changes to the U.S. federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT.

If we fail to maintain our status as a REIT for any taxable year, we will be subject to U.S. federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would

reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

To maintain our qualification as a REIT, we must meet annual distribution requirements, which may result in us distributing amounts that may otherwise be used for our operations and could result in our inability to acquire appropriate assets.

To maintain the favorable tax treatment afforded to REITs under the Internal Revenue Code, we are required each year to distribute to our stockholders at least 90% of our REIT taxable income (excluding net capital gain), determined without regard to the deduction for distributions paid. We will be subject to U.S. federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (i) 85% of our ordinary income, (ii) 95% of our capital gain net income and (iii) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these distributions. Although we intend to make distributions sufficient to meet the annual distribution requirements and to avoid U.S. federal income and excise taxes on our earnings, it is possible that we might not always be able to do so.

Our stockholders may have current tax liability on distributions they elect to reinvest in our common stock but would not receive cash from such distributions and therefore our stockholders would need to use funds from another source to pay such tax liability.

If stockholders participate in our distribution reinvestment plan, they will be deemed to have received, and for U.S. federal income tax purposes will be taxed on, the amount reinvested in common stock to the extent the amount reinvested was not a tax-free return of capital. As a result, unless stockholders are a tax-exempt entity, they may have to use funds from other sources to pay their respective tax liability on the value of the common stock received.

Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on our stockholders’ investment.

Our ability to dispose of property during the first few years following acquisition is restricted to a substantial extent as a result of our REIT status. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. Properties we own, directly or through any subsidiary entity, including our Operating Partnership, but generally excluding our taxable REIT subsidiaries, may, depending on how we conduct our operations, be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Under applicable provisions of the Internal Revenue Code regarding prohibited transactions by REITs, we would be subject to a 100% tax on any gain recognized on the sale or other disposition of any property (other than foreclosure property) that we own, directly or through any subsidiary entity, including our Operating Partnership, but generally excluding our taxable REIT subsidiaries, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of trade or business. Any taxes we pay would reduce our cash available for distribution to our stockholders.

In certain circumstances, we may be subject to U.S. federal, state and local income taxes as a REIT, which would reduce our cash available for distribution to our stockholders.

Even as a REIT, we may be subject to U.S. federal, state and local income taxes. For example, net income from the sale of properties that are “dealer” properties sold by a REIT (a “prohibited transaction” under the Internal Revenue Code) will be subject to a 100% tax. We may not be able to make sufficient distributions to

avoid excise taxes applicable to REITs. We also may decide to retain net capital gain we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. Further, a 100% excise tax would be imposed on certain transactions between us and any potential taxable REIT subsidiaries that are not conducted on an arm’s-length basis. We also may be subject to state and local taxes on our income or property, either directly or at the level of our Operating Partnership or at the level of the other companies through which we indirectly own our assets. Any taxes we pay would reduce our cash available for distribution to our stockholders.

The use of taxable REIT subsidiaries, which may be required for REIT qualification purposes, would increase our overall tax liability and thereby reduce our cash available for distribution to our stockholders.

Some of our assets (e.g., qualified health care properties) may need to be owned by, or operations may need to be conducted through, one or more taxable REIT subsidiaries. Any of our taxable REIT subsidiaries would be subject to U.S. federal, state and local income tax on its taxable income. The after-tax net income of our taxable REIT subsidiaries would be available for distribution to us. Further, we would incur a 100% excise tax on transactions with our taxable REIT subsidiaries that are not conducted on an arm’s-length basis. For example, to the extent that the rent paid by one of our taxable REIT subsidiaries exceeds an arm’s length rental amount, such amount would be potentially subject to a 100% excise tax. While we intend that all transactions between us and our taxable REIT subsidiaries would be conducted on an arm’s length basis, and therefore, any amounts paid by our taxable REIT subsidiaries to us would not be subject to the excise tax, no assurance can be given that no excise tax would arise from such transactions.

Complying with REIT requirements may force us to forgo and/or liquidate otherwise attractive investment opportunities.

To maintain our status as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and certain kinds of mortgage-related securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total securities can be represented by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate from our portfolio or not make otherwise attractive investments in order to maintain our qualification as a REIT. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.

Recharacterization of sale-leaseback transactions may cause us to lose our REIT status, which would subject us to U.S. federal income tax at corporate rates, which would reduce the amounts available for distribution to our stockholders.

We may purchase properties and lease them back to the sellers of such properties. While we will use our best efforts to structure any such sale-leaseback transaction such that the lease will be characterized as a “true lease,” thereby allowing us to be treated as the owner of the property for U.S. federal income tax purposes, the IRS could challenge such characterization. In the event that any such sale-leaseback is challenged and recharacterized as a financing transaction or loan for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction

were so recharacterized, we might fail to satisfy the REIT qualification asset tests or income tests and, consequently, lose our REIT status effective with the year of recharacterization. Alternatively, the amount of our REIT taxable income could be recalculated, which also might cause us to fail to meet the annual distribution requirement for a taxable year.

Legislative or regulatory action that affects our REIT status could adversely affect the returns to our stockholders.

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure our stockholders that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. Our stockholders are urged to consult with their own tax adviser with respect to the impact of recent legislation on their investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. Our stockholders also should note that our counsel’s tax opinion was based upon existing law, applicable as of the date of its opinion, all of which may be subject to change, either prospectively or retroactively.

Congress passed major federal tax legislation in 2003, with modifications to that legislation in 2005 and 2010. One of the changes effected by that legislation generally reduced the tax rate on dividends paid by companies to individuals to a maximum of 15.0% prior to 2013. On January 3, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, extending such 15.0% qualified dividend rate for those unmarried individuals with income under $400,000 and for married couples with income under $450,000. For those with income above such thresholds, the qualified dividend rate for 2013 and subsequent taxable years is 20.0%. REIT distributions generally do not qualify for this reduced rate. The tax changes did not, however, reduce the corporate tax rates. Therefore, the maximum corporate tax rate of 35.0% has not been affected. However, as a REIT, we generally would not be subject to federal corporate income taxes on that portion of our ordinary income or capital gain that we distribute to our stockholders, and, thus, we expect to avoid the “double taxation” to which other companies are typically subject.

Although REITs continue to receive substantially better tax treatment than entities taxed as corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be taxed for U.S. federal income tax purposes as a corporation. As a result, our charter provides our board of directors with the power, in the event that our board of directors determines that it is no longer in our best interest to continue to be qualified as a REIT, to revoke or otherwise terminate our REIT election and cause us to be taxed as a corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.

If our Operating Partnership fails to maintain its status as a partnership, its income may be subject to taxation, which would reduce the cash available to us for distribution to our stockholders.

We intend to maintain the status of the Operating Partnership as a partnership for U.S. federal income tax purposes. However, if the IRS were to successfully challenge the status of the Operating Partnership as a partnership for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the Operating Partnership could make to us. This would also result in our losing REIT status, and becoming subject to a corporate level tax on our own income. This would substantially reduce our cash available to pay distributions and the yield on our stockholders’ investment. In addition, if any of the partnerships or limited liability companies through which the Operating Partnership owns its properties, in whole or in part, loses its characterization as a partnership for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the Operating Partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain REIT status.

Foreign purchasers of our common stock may be subject to FIRPTA tax upon the sale of their shares or upon the payment of a capital gain dividend, which would reduce any gains they would otherwise have on their investment in our shares.

A foreign person disposing of a U.S. real property interest, including shares of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to the Foreign Investment in Real Property Tax Act of 1980, as amended, or FIRPTA, on the gain recognized on the disposition. The FIRPTA tax does not apply, however, to the disposition of stock in a REIT if the REIT is “domestically controlled.” A REIT is “domestically controlled” if less than 50% of the REIT’s stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence. We cannot assure our stockholders that we will qualify as a “domestically controlled” REIT. If we were to fail to so qualify, gain realized by foreign investors on a sale of our shares would be subject to FIRPTA tax, unless our shares were traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 5% of the value of our outstanding common stock.

A foreign investor also may be subject to FIRPTA tax upon the payment of any capital gain dividend by us, which dividend is attributable to gain from sales or exchanges of U.S. real property interests.

There are special considerations that apply to pension or profit-sharing trusts or IRAs investing in shares of our common stock, including potential adverse effects under ERISA and the Internal Revenue Code.

Our management has attempted to structure us in such a manner that we will be an attractive investment vehicle for pension, profit-sharing, 401(k), Keogh and other qualified retirement plans and IRAs. However, in considering an investment in our shares, those involved with making such an investment decision should consider applicable provisions of the Internal Revenue Code and ERISA. While each of the ERISA and Internal Revenue Code issues discussed below may not apply to all such plans and IRAs, individuals involved with making investment decisions with respect to such plans and IRAs should carefully review the items described below, and determine their applicability to their situation. Any such prospective investors are required to consult their own legal and tax advisors on these matters.

In general, individuals making investment decisions with respect to such plans and IRAs should, at a minimum, consider:

•

whether the investment is in accordance with the documents and instruments governing such plan or IRA;

•

whether the investment satisfies the prudence and diversification and other fiduciary requirements of ERISA, if applicable;

•

whether the investment will result in UBTI to the plan or IRA;

•

whether there is sufficient liquidity for the plan or IRA, considering the minimum and other distribution requirements under the Internal Revenue Code and the liquidity needs of such plan or IRA, after taking this investment into account;

•

the need to value the assets of the plan or IRA annually or more frequently; and

•

whether the investment would constitute or give rise to a prohibited transaction under ERISA or the Internal Revenue Code, if applicable.

Item 1B.

Unresolved Staff Comments.

None.

Item 2.

Properties.

Our principal executive offices are located at 4211 West Boy Scout Blvd., Suite 500, Tampa, Florida 33607. We do not have an address separate from our Advisor or our Sponsor.

As of December 31, 2013, we owned a portfolio of 32 properties (including one property owned through a consolidated partnership), located in 24 MSAs comprising 3.13 million gross rentable square feet of commercial space, including the square footage of a building which is situated on land subject to a ground lease. As of December 31, 2013, 28 of the properties were single-tenant commercial properties and four of the properties were multi-tenant commercial properties. As of December 31, 2013, 100% of our rental square feet was leased with a weighted average remaining lease term of 11.4 years. As of December 31, 2013, we had outstanding debt of $353,177,000, secured by certain of our properties and the related tenant leases.

Property Statistics

The following table shows the tenant diversification of our real estate portfolio, including one property owned through a consolidated partnership, as of December 31, 2013:


Property	Segment	Date Acquired		Year Built			Physical Occupancy			MSA	Gross Leased Area (Sq Ft)		Encumbrances (in thousands)
Richardson Data Center	Data Center		07/14/2011		2005			100.0	%	Dallas-Ft. Worth-Arlington, TX		20,000	$	14,889
180 Peachtree Data Center(1)	Data Center		01/03/2012		1927	(2)		100.0	%	Atlanta-Sandy Springs-Marietta, GA		338,076		53,747
St. Louis Surgical Center	Medical Facility		02/09/2012		2005			100.0	%	St. Louis, MO		21,823		6,123
Northwoods Data Center	Data Center		03/14/2012		1986			100.0	%	Atlanta-Sandy Springs-Marietta, GA		32,740		3,137
Stonegate Medical Center	Medical Facility		03/30/2012		2008			100.0	%	Austin-Round Rock-San Marcos, TX		27,373		—	(9)
Southfield Data Center	Data Center		05/25/2012		1970	(3)		100.0	%	Detroit-Warren-Livonia, MI		52,940		—	(9)
HPI Integrated Medical Facility	Medical Facility		06/28/2012		2007			100.0	%	Oklahoma City, OK		34,970		5,835
Texas Data Center Portfolio	Data Center		08/16/2012		1984/ 1986	(4)		100.0	%	Dallas-Ft. Worth-Arlington, TX		219,442		—	(9)
Baylor Medical Center	Medical Facility		08/29/2012		2012			100.0	%	Dallas-Ft. Worth-Arlington, TX		62,390		20,318
Vibra Denver Hospital	Medical Facility		09/28/2012		1962	(5)		100.0	%	Denver-Aurora-Broomfield, CO		131,210		—	(9)
Vibra New Bedford Hospital	Medical Facility		10/22/2012		1942			100.0	%	Providence-New Bedford-Fall River, MA		70,657		16,505
Philadelphia Data Center	Data Center		11/13/2012		1993			100.0	%	Philadelphia-Camden-Wilmington, PA		121,000		33,225
Houston Surgery Center	Medical Facility		11/28/2012		1998	(6)		100.0	%	Houston-Sugar Land-Baytown, TX		14,000		—	(9)
Akron General Medical Center	Medical Facility		12/28/2012		2012			100.0	%	Akron, OH		98,705		—	(9)
Grapevine Hospital	Medical Facility		02/25/2013		2007			100.0	%	Dallas-Ft. Worth-Arlington, TX		61,400		13,773
Raleigh Data Center	Data Center		03/21/2013		1997			100.0	%	Raleigh-Cary, NC		143,770		—	(9)
Andover Data Center	Data Center		03/28/2013		1984	(7)		100.0	%	Boston-Cambridge-Quincy, MA		92,700		—	(9)
Wilkes-Barre Healthcare Facility	Medical Facility		05/31/2013		2012			100.0	%	Scranton-Wilkes-Barre, PA		15,996		—	(9)
Fresenius Healthcare Facility	Medical Facility		06/11/2013		2010			100.0	%	Elkhart-Goshen, IN		15,462		—	(9)
Leonia Data Center	Data Center		06/26/2013		1988			100.0	%	New York-Northern New Jersey-Long Island		67,000		—	(9)
Physicians’ Specialty Hospital	Medical Facility		06/28/2013		1994	(8)		100.0	%	Fayetteville-Springdale-Rogers, AR		55,740		—	(9)
Christus Cabrini Surgery Center	Medical Facility		07/31/2013		2007			100.0	%	Alexandria, LA		15,600		—	(9)
Valley Baptist Wellness Center	Medical Facility		08/16/2013		2007			100.0	%	Brownsville-Harlingen, TX		38,111		6,320
Akron General Integrated Medical Facility	Medical Facility		08/23/2013		2013			100.0	%	Akron, OH		38,564		—	(9)
Victory Medical Center Landmark	Medical Facility		08/29/2013		2013			100.0	%	San Antonio-New Braunfels, TX		82,316		—	(9)
Post Acute/Warm Springs Rehab Hospital of Westover Hills	Medical Facility		09/06/2013		2012			100.0	%	San Antonio-New Braunfels, TX		50,000		—	(9)
AT&T Wisconsin Data Center	Data Center		09/26/2013		1989			100.0	%	Milwaukee-Waukesha-West Allis		142,952		—	(9)
AT&T Tennessee Data Center	Data Center		11/12/2013		1975			100.0	%	Nashville-Davidson–Murfreesboro–Franklin		347,515		27,305
Warm Springs Rehabilitation Hospital	Medical Facility		11/27/2013		1989			100.0	%	San Antonio-New Braunfels, TX		113,136		—	(9)
AT&T California Data Center	Data Center		12/17/2013		1983			100.0	%	San Diego-Carlsbad		499,402		—
Lubbock Heart Hospital	Medical Facility		12/20/2013		2003			100.0	%	Lubbock, TX		102,143		—

												3,127,133	$	201,177

(1)	Property owned through a consolidated partnership.

(2)	The 180 Peachtree Data Center was renovated in 2000.

(3)	The Southfield Data Center was renovated in 1997.

(4)	The Texas Data Center Portfolio consists of two data center properties: The Plano Data Center and the Arlington Data Center. The Plano Data Center was constructed in 1986 and redeveloped into a data center in 2011, and the Arlington Data Center was built in 1984.

(5)	The Vibra Denver Hospital was renovated in 1985.

(6)	The Houston Surgery Center was renovated in 2012.

(7)	The Andover Data Center was renovated in 2010.

(8)	The Physicians’ Specialty Hospital was renovated in 2009.

(9)	Property collateralized under the KeyBank Credit Facility. As of December 31, 2013, 19 commercial properties were collateralized under the KeyBank Credit Facility and we had $152,000,000 outstanding thereunder.

We believe the properties are adequately covered by insurance and are suitable for their respective intended purpose. We have no plans for any material renovations, improvements or development of the properties. Depreciation is recorded on a straight-line basis over the estimated useful life of the building, or 40 years, and over the shorter of the lease term or useful life of the tenant improvements.

Leases

Although there are variations in the specific terms of the leases of our portfolio, the following is a summary of the general structure of our leases. Generally, the leases of our properties provide for initial terms ranging from 10 to 20 years. As of December 31, 2013, the weighted average remaining lease term was 11.4 years. The properties generally are leased under net leases pursuant to which the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation, including utilities, property taxes and insurance. The leases at each individual property provide for annual rental payments (payable in monthly installments) ranging from $107,000 to $9,944,000 (an average of $1,652,000) per year. Certain leases provide for increases in rent as a result of fixed increases. Generally, the property leases provide the tenant with one or more multi-year renewal options, subject to generally the same terms and conditions as the initial lease term.

The following table shows lease expirations of our real properties based on annualized base rent as of December 31, 2013 and for each of the next ten years ending December 31 and thereafter, as follows:


Year of Lease Expiration	Total Number of Leases		Gross Leased Area (Sq Ft)		2013 Annualized Base Rent (in thousands)(1)		Percentage of 2013 Annualized Base Rent
2014		1		9,244	$	107		0.2	%
2015		1		18,624		236		0.3	%
2016		5		63,336		1,651		2.3	%
2017		1		13,583		292		0.4	%
2018		—		—		—		—
2019		—		—		—		—
2020		—		—		—		—
2021		2		165,882		6,598		9.1	%
2022		3		288,453		3,630		5.0	%
2023		6		1,209,953		24,562		33.8	%
Thereafter		25		1,358,058		35,632		49.0	%

		44		3,127,133	$	72,708		100.0	%

(1)	Annualized base rent is based on contractual base rent from leases in effect as of December 31, 2013.

Indebtedness

For a discussion of our indebtedness, see Note 8—“Notes Payable,” Note 9—“Credit Facility,” and Note 16—“Derivative Instruments and Hedging Activities,” to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

Item 3.

Legal Proceedings.

None.

Item 4.

Mine Safety Disclosures.

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

There is no established trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder, or at all. Pursuant to the Offering, we are selling shares of our common stock to the public at a price of $10.00 per share and at a price of $9.50 per share pursuant to our DRIP. Unless and until our shares are listed on a national securities exchange, we do not expect that a public market for the shares will develop.

To assist fiduciaries of tax-qualified pension, stock bonus or profit-sharing plans, employee benefit plans and annuities described in Section 403(a) or (b) of the Code or an individual retirement account or annuity described in Section 408 of the Code subject to the annual reporting requirements of ERISA and IRA trustees or custodians in preparation of reports relating to an investment in the shares, we intend to provide reports of the quarterly and annual determinations of the current value of the net assets per outstanding share to those fiduciaries who request such reports. In addition, in order for Financial Industry Regulatory Authority, or FINRA, members and their associated persons to participate in the Offering and sale of our shares of common stock, we are required pursuant to FINRA Rule 5110(f)(2)(m) to disclose in each annual report distributed to investors a per share estimated value of the shares, the method by which it was developed and the date of the data used to develop the estimated value. For these purposes, the deemed value of our common stock is $10.00 per share as of December 31, 2013. However, as set forth above, there is no public trading market for the shares at this time and stockholders may not receive $10.00 per share if a market did exist. Until the later of 18 months after the termination of our Offering or the termination of any subsequent offering of our shares, we intend to use the offering price of shares in the most recent offering as the per share net asset value. Beginning 18 months after the last offering of shares, the value of the properties and other assets will be based on valuations of either our properties or us as a whole, whichever valuation method our board of directors determines to be appropriate, which may include independent valuations of our properties or of our enterprise as a whole.

Share Repurchase Program

Our board of directors has adopted a share repurchase program that enables our stockholders to sell their shares to us in limited circumstances. Our share repurchase program permits stockholders to sell their shares back to us after they have held them for at least one year, subject to the significant conditions and limitations described below. Repurchase of shares of our common stock are at the sole discretion of our board of directors. In addition, our board of directors has the right, in its sole discretion, to waive such holding requirement in the event of the death or qualifying disability of a stockholder, other involuntary exigent circumstances, such as bankruptcy, or a mandatory requirement under a stockholder’s IRA.

Our common stock is currently not listed on a national securities exchange and we will not seek to list our stock until such time as our independent directors believe that the listing of our stock would be in the best interest of our stockholders. In order to provide stockholders with limited, interim liquidity, stockholders who have beneficially held their shares for at least one year may present all or a portion of the holder’s shares to us for repurchase at any time in accordance with the procedures outlined below. At that time, we may, subject to the conditions and limitations described below, purchase the shares presented for repurchase for cash to the extent that we have sufficient funds available to us to fund such repurchase. The purchase price for share repurchased under our share repurchase program will be as set forth below until we establish an estimated value of our shares. We expect to begin establishing an estimated value of our shares based on the value of our real estate and real estate-related investments on an annual basis beginning 18 months after the close of the Offering. Prior to establishing the estimated value of our shares, and unless the shares of our common stock are being repurchased

in connection with a stockholder’s death or qualifying disability, as defined in our share repurchase plan, the price per share that we will pay to repurchase shares of our common stock will be as follows:

•

for stockholders who have continuously held their shares of our common stock for at least one year, the price will be 92.5% of the amount paid for each share;

•

for stockholders who have continuously held their shares of our common stock for at least two years, the price will be 95.0% of the amount paid for each share;

•

for stockholders who have continuously held their shares of our common stock for at least three years, the price will be 97.5% of the amount paid for each share; and

•

for stockholders who have continuously held their shares of our common stock for at least four years, the price will be 100.0% of the amount paid for each share (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock).

Shares redeemed in connection with a stockholder’s death or qualifying disability will be redeemed at a price per share equal to 100% of the amount the stockholder paid for each share, or, once we have established an estimated value per share, 100% of such amount, as determined by our board of directors, subject to any special distribution previously made to the stockholders. Shares redeemed in connection with a stockholder’s other exigent circumstances, such as bankruptcy, within one year from the purchase date, will be redeemed at a price per share equal to the price per share we would pay had the stockholder held the shares for one year from the purchase date, and at all other times in accordance with the table above.

After our board of directors has determined a reasonable estimate of the value of our shares, the per redemption price will be based on the most recent estimated value of the shares as follows: after one year from the purchase date, 92.5% of the most recent estimated value of each share; after two years from the purchase date, 95.0% of the most recent estimated value of each share; after three years from the purchase date, 97.5% of the most recent estimated value of each share; and after four years, from the purchase date, 100% of the most recent estimated value of each share (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock).

At any time the redemption price is determined by any method other than the net asset value of the shares, if we have sold property and have made one or more special distributions to our stockholders of all or a portion of the net proceeds from such sales, the per share redemption price will be reduced by the net sale proceeds per share distributed to investors prior to the redemption date. Our board of directors will, at its sole discretion, determine which distributions, if any, constitute a special distribution. While our board of directors does not have specific criteria for determining a special distribution, we expect that a special distribution will only occur upon the sale of property and the subsequent distribution of the net sale proceeds. Upon receipt of a request for redemption, we will conduct a Uniform Commercial Code, or UCC, search to ensure that no liens are held against the shares. We will not redeem any shares subject to a lien. Any costs in conducting the UCC search will be borne by us.

We generally redeem shares on a monthly basis. Requests for redemption must be received at least five business days prior to the end of the month in which the stockholder is requesting a repurchase of their shares. Each stockholder whose repurchase request is granted will receive the repurchase amount within ten days after the end of the month in which we grant the repurchase request. Subject to certain limitations, we will also repurchase shares upon the request of the estate, heir or beneficiary of a deceased stockholder. We will not repurchase in excess of 5.0% of number of shares of common stock outstanding as of December 31^st of the previous calendar year.

A stockholder or his or her estate, heir or beneficiary may present to us fewer than all of the shares then-owned for repurchase. Repurchase requests made (i) on behalf of a deceased stockholder; (ii) by a stockholder due to another involuntary exigent circumstance, such as bankruptcy; or (iii) by a stockholder due to a mandatory distribution under such stockholder’s IRA must be made within 360 days of such event.

Our Advisor, directors and their respective affiliates are prohibited from receiving a fee in connection with the share repurchase program.

Funding for the share repurchase program will come exclusively from proceeds we receive from the sale of shares under our DRIP during the prior calendar year and other operating funds, if any. If funds available for our share repurchase program are not sufficient to accommodate all requests, shares will be repurchased as follows: (i) first, pro rata as to repurchases upon the death of a stockholder; (ii) next, pro rata as to repurchases to stockholders who demonstrate, in the discretion of our board of directors another involuntary exigent circumstance, such as bankruptcy; (iii) next, pro rata as to repurchases to stockholders subject to a mandatory distribution requirement under such stockholder’s IRA; and (iv) finally, pro rata as to all other repurchase requests.

Our board of directors may choose to amend, suspend, reduce, terminate or otherwise change our share repurchase program at any time upon 30 days prior notice to our stockholders for any reason it deems appropriate. Additionally, we will be required to discontinue sales of shares under the DRIP until the earlier of (i) June 6, 2014; (ii) the date on which the maximum offering has been sold; or (iii) the effective date of our registration for our follow-on offering. Because the redemption of shares will be funded with the net proceeds we receive from the sale of shares under the DRIP, the discontinuance or termination of the DRIP will adversely affect our ability to redeem shares under the share repurchase program. We would notify stockholders of such development in our annual or quarterly reports or by means of a separate mailing to stockholders. During the Offering, we would also include this information in a prospectus supplement or post-effective amendment to the Registration Statement, as then required under federal securities law.

Our share repurchase program is only intended to provide our stockholders with limited, interim liquidity for their shares until a liquidity event occurs, such as listing of the shares on a national securities exchange or a merger with a listed company. The share repurchase program will be terminated if the shares become listed on a national securities exchange. We cannot guarantee that a liquidity event will occur.

During the year ended December 31, 2013, we received valid redemption requests relating to approximately 80,000 shares, which were redeemed in full for an aggregate of $783,000 (an average of $9.79 per share) under our share repurchase program. During the year ended December 31, 2012, we received valid redemption requests relating to approximately 20,000 shares, which were redeemed in full for an aggregate of $196,000 (an average of $9.80 per share) under our share repurchase program.

During the three months ended December 31, 2013, we redeemed shares of common stock under our share repurchase program as follows:


Period	Total Number of Shares Redeemed		Average Price Paid per Share		Total Numbers of Shares Purchased as Part of Publicly Announced Plans and Programs		Approximate Dollar Value of Shares Available that may yet be Redeemed under the Program
10/1/2013 10/31/2013		13,628	$	9.84		13,628		(1)
11/1/2013 11/30/2013		2,234	$	9.98		2,234		(1)
12/1/2013 12/31/2013		35,696	$	9.91		35,696		(1)

Total		51,558				51,558

(1)

A description of the maximum number of shares that may be redeemed under our share repurchase program is included in the narrative preceding this table. During the three months ended December 31, 2013, we redeemed approximately $510,140 of common stock, which represented all redemption requests received in good order and eligible for redemption through the December 2013 redemption date.

Stockholders

As of March 14, 2014, we had approximately 96,850,000 shares of common stock outstanding held by 25,197 stockholders of record.

Distributions

We are taxed and qualify as a REIT for federal income tax purposes. As a REIT, we make distributions each taxable year equal to at least 90% of our taxable income (excluding capital gains). One of our primary goals is to continue to pay regular (monthly) distributions to our stockholders. For the year ended December 31, 2013, we paid aggregate distributions of $26,393,000 ($14,176,000 in cash and $12,217,000 reinvested in shares of our common stock pursuant to the DRIP). For the year ended December 31, 2012, we paid aggregate distributions of $5,971,000 ($3,206,000 in cash and $2,765,000 reinvested in shares of our common stock pursuant to the DRIP).

Use of Public Offering Proceeds

On December 10, 2010, our Registration Statement on Form S-11 (File No. 333-165643) covering a public offering of up to 175 million shares of common stock, was declared effective under the Securities Act. We are offering a maximum of 150 million shares of common stock for $10.00 per share and 25 million shares of common stock pursuant to our DRIP for $9.50 per share, for a maximum offering of up to $1.7 billion.

As of December 31, 2013, we had received subscriptions for and issued approximately 73.2 million shares of our common stock (including shares of common stock issued pursuant to the DRIP) for gross proceeds of approximately $727.3 million (before selling commissions of $46.2 million and dealer-manager fees of $19.7 million, for net proceeds of approximately $661.4 million). From the net offering proceeds, we paid $17.4 million in acquisition fees to our Advisor, $7.6 million in acquisition costs, and $13.3 million in organization and offering costs to our Advisor and our Dealer Manager as of December 31, 2013. With the remaining net offering proceeds, joint venture equity and indebtedness, we acquired $943.1 million in total gross real estate. In addition, we invested an aggregate of $97.4 million in secured preferred equity loans, bridge loans, an unsecured loan and a construction loan. As of December 31, 2013, a total of $15.2 million in distributions were reinvested in, and 1.6 million shares of common stock were issued pursuant to the DRIP.

As of December 31, 2013, approximately $0.3 million remained payable to our dealer-manager and our Advisor, or its affiliates, for costs related to the Offering.

On October 11, 2013, we filed with the SEC a registration statement on Form S-11 (File No. 333-191706) under the Securities Act with respect to a proposed follow-on offering of up to $240,000,000 of shares of common stock to be offered pursuant to a primary offering, and up to $10,000,000 of shares of common stock to be offered pursuant to the DRIP. The follow-on offering has not yet been declared effective by the SEC.

Securities Authorized for Issuance Under Equity Compensation Plans and Unregistered Sales of Equity Securities.

We adopted our 2010 Restricted Share Plan, pursuant to which our board of directors has the authority to grant restricted or deferred stock awards to persons eligible under the plan. The maximum number of shares of our common stock that may be issued pursuant to our 2010 Restricted Share Plan is 300,000, subject to adjustment under specified circumstances. For a further discussion of our 2010 Restated Share Plan, see Note 10—“Stock-Based Compensation” to the consolidated financial statements that are a part of this Annual Report on Form 10-K.


Plan Category	Number of Securities to Be Issued upon Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance
Equity compensation plans approved by security holders(1)		—		—		267,000
Equity compensation plans not approved by security holders		—		—		—

Total		—		—		267,000

(1)

On July 2, 2013, we granted 3,000 restricted shares of common stock to each of our independent directors in connection with such director’s re-election to our board of directors. The fair value of each share of our restricted common stock was estimated at the date of grant at $10.00 per share, the per share price in our offerings. As of December 31, 2013, we had issued an aggregate of 33,000 shares of restricted stock to our independent directors in connection with their initial or subsequent election to our board of directors. Restricted stock issued to our independent directors will vest over a four-year period.

The shares described above were not registered under the Securities Act and were issued in reliance on Section 4(2) of the Securities Act.

Item 6.

Selected Financial Data.

The following should be read with Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the notes thereto. Our historical results are not necessarily indicative of results for any future period. We had limited results of operations for the period from December 16, 2009 (Date of Inception) through December 31, 2009 and for the years ended December 31, 2010 and 2011, and therefore our results of operations for the years ended December 31, 2013, 2012, 2011 and 2010 and for the period from December 16, 2009 (Date of Inception) through December 31, 2009 are not comparable.

The following table presents summarized consolidated financial information including balance sheet information and operating results in a format consistent with our consolidated financial statements under Item 15. Exhibits and Financial Statement Schedules of this Annual Report on Form 10-K (amounts in thousands, except shares and per share data):


	As of and for the Year Ended December 31,												December 16, 2009 (Date of Inception) Through December 31, 2009
Selected Financial Data	2013			2012			2011			2010
Balance Sheet Data:
Total investment in real estate assets, net	$	977,424		$	443,423		$	30,143		$	—		$	—
Cash and cash equivalents	$	7,511		$	4,377		$	8,969		$	202		$	200
Real estate-related notes receivables	$	54,080		$	23,711		$	514		$	—		$	—
Total assets	$	1,064,664		$	483,797		$	85,351		$	202		$	200
Notes payable	$	201,177		$	156,847		$	15,850		$	—		$	—
Credit facility	$	152,000		$	55,500		$	—		$	—		$	—
Intangible lease liabilities, net	$	53,962		$	54,022		$	1,679		$	—		$	—
Total liabilities	$	423,381		$	279,919		$	20,545		$	66		$	—
Total equity	$	641,283		$	203,878		$	64,806		$	136		$	200

Operating Data:
Total revenue	$	68,299		$	28,446		$	1,345		$	—		$	—
Rental and parking expenses	$	11,915		$	7,066		$	96		$	—		$	—
Acquisition related expenses	$	5,615		$	11,474		$	1,084		$	—		$	—
Depreciation and amortization	$	18,749		$	8,080		$	517		$	—		$	—
Income (loss) from operations	$	27,219		$	654		$	(1,027	)	$	(66	)	$	—
Consolidated net income (loss)	$	14,679		$	(5,640	)	$	(1,439	)	$	(66	)	$	—
Net (income) loss attributable to noncontrolling interests in consolidated partnerships	$	(2,021	)	$	(2,060	)	$	378		$	1		$	—
Net income (loss) attributable to the Company	$	12,658		$	(7,700	)	$	(1,061	)	$	(65	)	$	—
Modified funds from operations(1)	$	26,608		$	4,980		$	(223	)	$	(65	)	$	—

Per Share Data:
Net income (loss) per common share attributable to the Company:
Basic	$	0.30		$	(0.78	)	$	(1.03	)	$	(3.27	)	$	—
Diluted	$	0.30		$	(0.78	)	$	(1.03	)	$	(3.27	)	$	—
Distributions declared	$	29,419		$	6,922		$	645		$	—		$	—
Distributions declared per common share	$	0.70		$	0.70		$	0.63		$	—		$	—
Weighted average number of common shares outstanding:
Basic	$	42,207,714		$	9,933,490		$	1,026,976		$	20,000		$	20,000
Diluted	$	42,224,944		$	9,933,490		$	1,026,976		$	20,000		$	20,000

Cash Flow Data:
Net cash provided by (used in) operating activities	$	25,692		$	1,277		$	(90	)	$	—		$	—
Net cash used in investing activities	$	(578,816	)	$	(345,838	)	$	(74,321	)	$	—		$	—
Net cash provided by financing activities	$	556,258		$	339,969		$	83,178		$	2		$	200

(1)	Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Funds from Operations and Modified Funds from Operations for a discussion of our modified funds from operations.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Consolidated Financial Data,” and our consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under “Risk Factors” and “Forward-Looking Statements.” All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements.

Overview

We were incorporated on December 16, 2009 under the laws of the state of Maryland in order to acquire and operate a diversified portfolio of income producing commercial real estate, with a focus on the data center and medical sectors, net leased to investment grade and other creditworthy tenants, as well as to make other real estate investments that relate to such property types. As of December 31, 2013, we owned 32 properties (including one property owned through a consolidated partnership) comprising of 40 buildings, 3.13 million rentable square feet of single-tenant and multi-tenant commercial space, located in 24 metropolitan statistical areas, or MSAs, which we acquired for an aggregate purchase price of $943,071,000. As of December 31, 2013, the rentable space at these properties was 100% leased. As of December 31, 2013, we had also invested in real estate-related notes receivables in the aggregate principal amount of $53,130,000.

We qualified to be taxed as a REIT under the Code for federal income tax purposes beginning with the taxable year ended December 31, 2011.

We are offering for sale to the public on a “best efforts” basis a maximum of 150,000,000 shares of common stock at a price of $10.00 per share and up to 25,000,000 additional shares pursuant to a DRIP under which stockholders may elect to have distribution reinvestment in additional shares of common stock at the higher of $9.50 per share or 95% of the fair market value per share as determined by our board of directors. Our Registration Statement was first declared effective by the SEC on December 10, 2010. As of December 31, 2013, we had received and accepted subscriptions in our Offering for 73,208,000 shares of our common stock (including shares of common stock issued pursuant to the DRIP), resulting in our receipt of gross proceeds of $727,305,000.

On October 11, 2013, we filed with the SEC a registration statement on Form S-11 under the Securities Act with respect to a proposed follow-on offering of up to $240,000,000 of shares of common stock to be offered pursuant to a primary offering, and up to $10,000,000 of shares of common stock to be offered pursuant to the DRIP. We have not issued any shares in connection with the proposed follow-on offering as it has not yet been declared effective by the SEC.

Substantially all of our operations are conducted through our Operating Partnership. We are externally advised by our Advisor pursuant to an advisory agreement. Our Advisor supervises and manages our day-to-day operations and selects the properties and real estate-related investments we acquire, subject to the oversight and approval of our board of directors. Our Advisor also provides marketing, sales and client services on our behalf. Our Advisor engages affiliated entities to provide various services to us. Our Advisor is managed by and is a subsidiary of our Sponsor.

Critical Accounting Policies

Our critical accounting policies are more fully described in Note 2—“Summary of Significant Accounting Policies” of the consolidated financial statements that are part of this Annual Report on Form 10-K. As disclosed in Note 2, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in

the financial statements and accompanying notes. Actual results could differ significantly from those estimates. We believe that the following discussion addresses the most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

Revenue Recognition, Tenant Receivables and Allowance for Uncollectible Accounts

We recognize revenue in accordance with Financial Accounting Standards Board, or the FASB, Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition, or ASC Topic 605. ASC Topic 605 requires that all four of the following basic criteria be met before revenue is realized or realizable and earned: (1) there is persuasive evidence that an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed and determinable; and (4) collectability is reasonably assured.

In accordance with ASC, Topic 840, Leases, we recognize minimum annual rental revenue on a straight-line basis over the term of the related lease (including rent holidays). Differences between rental income recognized and amounts contractually due under the lease agreements are credited or charged, as applicable, to rent receivable. Tenant reimbursement revenue, which is comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred. Tenant reimbursements are recognized and presented in accordance with ASC Subtopic 605-45, Revenue Recognition—Principal Agent Consideration, or ASC Subtopic 605-45. ASC Subtopic 605-45 requires that these reimbursements be recorded on a gross basis, as we generally are the primary obligor with respect to purchasing goods and services from third-party suppliers, and thus have discretion in selecting the supplier and have credit risk. We recognize lease termination fees if there is a signed termination letter agreement, all of the conditions of the agreement have been met and the tenant is no longer occupying the property.

Tenant receivables and unbilled deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and unbilled deferred rent. An allowance will be maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements. We also maintain an allowance for deferred rent receivables arising from the straight-lining of rents. Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the tenant’s financial condition, security deposits, letters of credit, lease guarantees and current economic conditions and other relevant factors. As of December 31, 2013, we did not have an allowance for uncollectible tenant receivables.

Capitalization of Expenditures and Depreciation of Assets

The cost of operating properties includes the cost of land and completed buildings and related improvements. Expenditures that increase the service life of properties are capitalized; the cost of maintenance and repairs are charged to expense as incurred. The cost of building and improvements is depreciated on a straight-line basis over the estimated useful lives. The cost of tenant improvements is depreciated on a straight-line basis over the shorter of the lease term or useful life. Furniture, fixtures and equipment are depreciated over their estimated useful lives. When depreciable property is retired or disposed of, the related costs and accumulated depreciation will be removed from the accounts and any gain or loss will be reflected in operations.

As part of the leasing process, we may provide the lessee with an allowance for the construction of leasehold improvements. These leasehold improvements are capitalized and recorded as tenant improvements, and depreciated over the shorter of the useful life of the improvements or the lease term. If the allowance represents a payment for a purpose other than funding leasehold improvements, or in the event we are not considered the owner of the improvements, the allowance is considered to be a lease inducement and is recognized over the lease term as a reduction of rental revenue. Factors considered during this evaluation include, among other things, which entity holds legal title to the improvements as well as other controlling rights provided by the lease agreement and provisions for substantiation of such costs (e.g. unilateral control of the tenant space during the build-out process). Determination of the appropriate accounting for the payment of a tenant allowance is made on a lease-by-lease basis, considering the facts and circumstances of the individual tenant lease.

Recognition of lease revenue commences when the lessee is given possession of the leased space upon completion of tenant improvements when we are the owner of the leasehold improvements. However, when the leasehold improvements are owned by the tenant, the lease inception date is the date the tenant obtains possession of the leased space for purposes of constructing its leasehold improvements.

Impairment

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets may not be recoverable, we assess the recoverability of the assets by estimating whether we will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition. If based on this analysis we do not believe that we will be able to recover the carrying value of the asset, we will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the asset. No impairment losses have been recorded to date.

When developing estimates of expected future cash flows, we make certain assumptions regarding future market rental income amounts subsequent to the expiration of current lease arrangements, property operating expenses, terminal capitalization and discount rates, the expected number of months it takes to re-lease the property, required tenant improvements and the number of years the property will be held for investment. The use of alternative assumptions in the future cash flow analysis could result in a different determination of the property’s future cash flows and a different conclusion regarding the existence of an impairment, the extend of such loss, if any, as well as the carrying value of the real estate and related assets.

Purchase Price Allocation

Upon the acquisition of real properties, we allocate the purchase price of properties to acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, based in each case on their estimated fair values.

The fair values of the tangible assets of an acquired property (which includes land and building) are determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and building based on our determination of the relative fair value of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases, including leasing commissions and other related costs. In estimating carrying costs, management includes real estate taxes, insurance, and other operating expenses during the expected lease-up periods based on current market conditions.

The fair values of above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, including any bargain renewal periods, with respect to a below-market lease. The above-market and below-market lease values are capitalized as intangible lease assets or liabilities. Above-market lease values are amortized as an adjustment of rental income over the remaining terms of the respective leases. Below-market leases are amortized as an adjustment of rental income over the remaining terms of the respective leases, including any bargain renewal periods. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above-market and below-market in-place lease values relating to that lease would be recorded as an adjustment to rental income.

The fair values of in-place leases include direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease, and tenant relationships. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are

estimated based on management’s consideration of current market costs to execute a similar lease. These direct lease origination costs are included in real estate assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These lease intangibles are included in real estate assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed.

Income Taxes

We qualified and elected to be taxed as a REIT for federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code, beginning with the year ended December 31, 2011. As a REIT, we are required, among other things, to distribute at least 90% of our taxable income (excluding capital gains) to our stockholders. In addition, we generally will not be subject to federal corporate income tax to the extent we distribute our taxable income to our stockholders. REITs are subject to a number of other organizational and operational requirements. Even if we maintain our qualification for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.

Investments in 2013 and 2014

•

During the year ended December 31, 2013, we, through wholly-owned subsidiaries, acquired 17 properties consisting of 1.9 million gross rentable square feet of commercial space, for an aggregate purchase price of $548,587,000. As of December 31, 2013, the properties were 100% leased.

•

During the year ended December 31, 2013, we invested approximately $73,766,000 in real estate-related notes receivables, of which $44,300,000 was repaid.

•

On February 25, 2014, we, through a wholly-owned subsidiary, acquired a 199,182 rentable square foot medical facility, located in Dallas, Texas, for a purchase price of $98,486,000, plus closing costs. We financed the acquisition with net proceeds from our Offering and debt financing. As of March 14, 2014, the property was 100% leased to a single tenant.

•

On March 14, 2014, we, through a wholly-owned subsidiary, acquired a 63,000 rentable square foot medical facility, located in Hammond, Louisiana, for a purchase price of $25,200,000, plus closing costs. We financed the acquisition with net proceeds from our Offering. As of March 14, 2014, the property was 100% leased to a single tenant.

For a further discussion of our 2013 acquisitions, see Note 3—“Real Estate Investments,” and for a further discussion on acquisitions in 2014, see Note 22—“Subsequent Events” to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

Factors That May Influence Results of Operations

We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally and those risks listed in Part I. Item 1A. Risk Factors, of this Annual Report on Form 10-K, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of our properties.

Rental Income

The amount of rental income generated by our properties depends principally on our ability to maintain the occupancy rates of leased space and to lease available space and space available from unscheduled lease terminations at the then existing rental rates. Negative trends in one or more of these factors could adversely affect our rental income in future periods. As of December 31, 2013, our properties were 100% leased.

Results of Operations

Real Estate Investments

Our results of operations are influenced by the timing of acquisitions and the operating performance of our real estate investments. The following table shows the property statistics of our real estate as of December 31, 2013, 2012 and 2011:


	December 31, 2013			December 31, 2012			December 31, 2011
Number of commercial properties		32			15			1
Approximate aggregate rentable square feet(1)		3,127,000			1,245,000			20,000
Percentage of rentable square feet leased		100	%		100	%		100	%

(1)	Excludes parking facilities.

The following table summarizes our real estate investment activity for the years ended December 31, 2013, 2012 and 2011:


	Year Ended December 31,
	2013		2012		2011
Commercial properties acquired		17		14		1
Approximate aggregate purchase price of acquired properties	$	548,587,000	$	365,544,000	$	28,940,000
Approximate aggregate rentable square feet(1)		1,882,000		1,225,000		20,000

(1)	Excludes parking facilities.

As shown in the tables above, we owned 32 commercial properties as of December 31, 2013 (including one property owned through a consolidated partnership), compared to 15 commercial properties as of December 31, 2012 (including two properties owned through consolidated partnerships) and one commercial property as of December 31, 2011. Accordingly, our results of operations for the year ended December 31, 2013, as compared to the year ended December 31, 2012, and our results of operations for the year ended December 31, 2012, as compared to the year ended December 31, 2011, are not comparable; therefore, we have not included the percentage change.

Real Estate-Related Notes Receivables

The following table summarizes our investments in real estate-related notes receivables as of December 31, 2013, 2012 and 2011:


	December 31, 2013		December 31, 2012		December 31, 2011
Number of notes receivables outstanding		5		3		1
Outstanding principal amount of notes receivables	$	53,130,000	$	23,664,000	$	514,000

The following table summarizes our activity in investments in real estate-related notes receivables for the years ended December 31, 2013, 2012 and 2011:


	Year Ended December 31,
	2013		2012		2011
Number of notes receivables originated		5		2		1
Number of notes receivables repaid		3		—		—
Interest income earned on notes receivables	$	5,817,000	$	692,000	$	—

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Revenue. Revenue increased $39.9 million to $68.3 million for the year ended December 31, 2013, compared to $28.4 million for the year ended December 31, 2012. Revenue consisted of rental and parking revenue, tenant reimbursement revenue and notes receivables interest income. Rental and parking revenue increased $31.0 million to $52.9 million for the year ended December 31, 2013, as compared to $22.0 million for the year ended December 31, 2012, and tenant reimbursement revenue increased $3.7 million to $9.5 million for the year ended December 31, 2013, as compared to $5.8 million for the year ended December 31, 2012. The increase in rental and parking revenue was primarily due to owning 32 properties as of December 31, 2013 as compared to 15 properties as of December 31, 2012.

Notes receivables interest income increased $5.1 million to $5.8 million for the year ended December 31, 2013, compared to $0.7 million for the year ended December 31, 2012. The increase was primarily due to an increase in notes receivables of $30.4 million to $54.1 million as of December 31, 2013, as compared to $23.7 million as of December 31, 2012.

Rental and Parking Expenses. Rental and parking expenses increased $4.8 million to $11.9 million for the year ended December 31, 2013, compared to $7.1 million for the year ended December 31, 2012. The increase was primarily due to the acquisition of 17 properties during the year ended December 31, 2013, which resulted in increased utility costs of $1.6 million, increased real estate taxes of $1.5 million, increased repair and maintenance costs of $0.4 million, increased property management fees of $0.9 million, increased insurance costs of $0.2 million and increased administrative costs of $0.2 million for such period.

General and Administrative Expenses. General and administrative expenses increased $1.5 million to $2.5 million for the year ended December 31, 2013, compared to $1.0 million for the year ended December 31, 2012. The increase was primarily due to increased allocated personnel and allocated overhead costs associated with our growth, which resulted in increased personnel costs of $0.5 million, increased professional and legal fees of $0.5 million, increased administrative fees of $0.2 million and increased other administrative expenses of $0.3 million.

Acquisition Related Expenses. Acquisition related expenses decreased $5.9 million to $5.6 million for the year ended December 31, 2013, compared to $11.5 million for the year ended December 31, 2012. The decrease primarily relates to acquisition fees and expenses associated with purchases of five of the 17 properties purchased for the year ended December 31, 2013, which were determined to be asset acquisitions. Acquisition fees and expenses associated with transactions determined to be an asset acquisition are capitalized. For the year ended December 31, 2012, acquisition fees and expenses related to the acquisitions of 14 properties that were determined to be business combinations. Acquisition fees and expenses associated with transactions determined to be a business combination are expensed as incurred. Pursuant to the advisory agreement, we pay an acquisition fee to our Advisor of 2% of the contract purchase price of each property or asset acquired. We also reimburse our Advisor for acquisition expenses incurred in the process of acquiring a property or in the origination or acquisition of a loan other than for personnel costs for which our Advisor receives acquisition fees.

Asset Management Fees. Asset management fees increased $2.2 million to $2.3 million for the year ended December 31, 2013, compared to $0.1 million for the year ended December 31, 2012. During the year ended December 31, 2013, our Advisor earned $4.6 million in asset management fees and waived irrevocably, without recourse, $2.3 million in asset management fees. During the year ended December 31, 2012, our Advisor earned $1.2 million in asset management fees and waived irrevocably, without recourse, $1.1 million in asset management fees.

Depreciation and Amortization. Depreciation and amortization increased $10.6 million to $18.7 million for the year ended December 31, 2013, compared to $8.1 million for the year ended December 31, 2012. The increase was primarily due to an increase in the weighted average depreciable basis of real estate properties to $474.4 million for the year ended December 31, 2013, compared to $177.9 million for the year ended December 31, 2012.

Interest and Other Income (Expense). Interest and other income increased $0.08 million to $0.05 million for the year ended December 31, 2013, compared to $(0.03) million for the year ended December 31, 2012. The increase was primarily due to increased interest income earned on deposits at banks in the amount of $0.06 million and an increase in income earned in unconsolidated partnerships in the amount of $0.02 million.

Interest Expense. Interest expense increased $6.3 million to $12.6 million for the year ended December 31, 2013, compared to $6.3 million for the year ended December 31, 2012. The increase was primarily due to increased interest expense on notes payable and the KeyBank Credit Facility (as defined below) of $5.5 million and increased amortization expense of debt issue costs of $0.8 million.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Revenue. Revenue increased $27.1 million to $28.4 million for the year ended December 31, 2012, compared to $1.3 million for the year ended December 31, 2011. Revenue consisted of rental and parking revenue, tenant reimbursement revenue and notes receivables interest income. Rental and parking revenue increased $20.7 million to $22.0 million for the year ended December 31, 2012, as compared to $1.3 million for the year ended December 31, 2011, and tenant reimbursement revenue increased $5.7 million to $5.8 million for the year ended December 31, 2012, as compared to $0.1 million for the year ended December 31, 2011. The increase in rental and parking revenue was primarily due to owning 15 properties as of December 31, 2012 as compared to one property as of December 31, 2011.

We recorded notes receivables interest income of $0.7 million for the year ended December 31, 2012. During the year ended December 31, 2011, we did not have any notes receivables outstanding.

Rental and Parking Expenses. Rental and parking expenses increased $7.0 million to $7.1 million for the year ended December 31, 2012, compared to $0.1 million for the year ended December 31, 2011. The increase was primarily due to the acquisition of 14 properties during the year ended December 31, 2012, which resulted in increased utility costs of $2.8 million, increased real estate taxes of $1.7 million, increased personnel and professional costs of $0.8 million, increased repair and maintenance costs of $0.9 million, increased property management fees of $0.5 million, increased insurance costs of $0.1 million and increased administrative costs of $0.2 million for such period.

General and Administrative Expenses. General and administrative expenses increased $0.5 million to $1.0 million for the year ended December 31, 2012, compared to $0.5 million for the year ended December 31, 2011. The increase was primarily due to increased personnel and overhead costs associated with our growth, which resulted in increased personnel costs of $0.1 million, increased professional and legal fees of $0.3 million and increased other administrative expenses of $0.1 million.

Acquisition Related Expenses. Acquisition related expenses increased $10.4 million to $11.5 million for the year ended December 31, 2012, compared to $1.1 million for the year ended December 31, 2011 due to our acquisition of 14 properties during the year ended December 31, 2012. Pursuant to the advisory agreement, we pay an acquisition fee to our Advisor of 2% of the contract purchase price of each property or asset acquired. We also reimburse our Advisor for acquisition expenses incurred in the process of acquiring a property or in the origination or acquisition of a loan other than for personnel costs for which our Advisor receives acquisition fees.

Asset Management Fees. During the year ended December 31, 2012, our Advisor earned $1.2 million in asset management fees and waived irrevocably, without recourse, $1.1 million in asset management fees. During the year ended December 31, 2011, our Advisor earned $0.1 million in asset management fees.

Depreciation and Amortization. Depreciation and amortization increased $7.6 million to $8.1 million for the year ended December 31, 2012, compared to $0.5 million for the year ended December 31, 2011. The increase was primarily due to an increase in the weighted average depreciable basis of real estate properties to $177.9 million for the year ended December 31, 2012, compared to $12.1 million for the year ended December 31, 2011.

Interest and Other Income (Expense). Interest and other income (expense) decreased $0.04 million to $(0.03) million for the year ended December 31, 2012, compared to $0.01 million for the year ended December 31, 2011. The decrease was primarily due to a loss in unconsolidated partnerships in the amount of $0.04 million.

Interest Expense. Interest expense increased $5.9 million to $6.3 million for the year ended December 31, 2012, compared to $0.4 million for the year ended December 31, 2011. The increase was primarily due to increased interest expense on notes payable and the KeyBank Credit Facility (as defined below) of $5.4 million and increased amortization expense of debt issue costs of $0.5 million.

Distributions to Stockholders

We have paid, and may continue to pay, distributions from sources other than from our cash flow provided by operations. For the year ended December 31, 2013, our cash flow provided by operations of approximately $25.7 million was a shortfall of $0.7 million, or 2.7%, of our distributions paid (total distributions were approximately $26.4 million, of which $14.2 million was cash and $12.2 million was reinvested in shares of our common stock pursuant to our DRIP) during such period and such shortfall was paid from proceeds from the Offering. For the year ended December 31, 2012, our cash flow provided by operations of $1.3 million was a shortfall of $4.7 million, or 78.3%, of our distributions paid (total distributions were $6.0 million, of which $3.2 million were paid in cash and $2.8 million in shares of our common stock pursuant to our DRIP) during such period and such shortfall was paid from proceeds from the Offering. Additionally, we may in the future pay distributions from sources other than from our cash flow from operations. Until we acquire additional properties or other real estate-related investments, we may not generate sufficient cash flow from operations to pay distributions. Our inability to acquire additional properties or other real estate-related investments may result in a lower return on your investment than you expect.

We do not have any limits on the sources of funding distribution payments to our stockholders. We may pay, and have no limits on the amounts we may pay, distributions from any source, such as from borrowings, the sale of assets, the sale of additional securities, advances from our advisor, our advisor’s deferral, suspension and/or waiver of its fees and expense reimbursements and offering proceeds. Funding distributions from borrowings could restrict the amount we can borrow for investments, which may affect our profitability. Funding distributions with the sale of assets may affect our ability to generate cash flows. Funding distributions from the sale of additional securities could dilute your interest in us if we sell shares of our common stock to third party investors. If we fund distributions from the proceeds of our Offering, we will have less funds available for acquiring properties or real estate-related investments. Our inability to acquire additional properties or real estate-related investments may have a negative effect on our investors’ ability to generate sufficient cash flow from operations to pay distributions. As a result, the return investors may realize on their investment may be reduced and investors who invest in us before we generate significant cash flow may realize a lower rate of return than later investors. Payment of distributions from any of the mentioned sources could restrict our ability to generate sufficient cash flow from operations, affect our profitability and/or affect the distributions payable upon a Liquidity Event, any or all of which may have an adverse effect on an investment in us.

For federal income tax purposes, distributions to common stockholders are characterized as ordinary dividends, capital gain distributions, or nontaxable distributions. To the extent that we make a distribution in excess of our current or accumulated earnings and profits, the distribution will be a nontaxable return of capital, reducing the tax basis in each U.S. stockholder’s shares. Further, the amount of distributions in excess of a U.S. stockholder’s tax basis in such shares will be taxable as a gain realized from the sale of those shares.

The following table shows the character of distributions the Company paid on a percentage basis during the years ended December 31, 2013, 2012 and 2011:


	For the Year Ended December 31,
Character of Distributions:	2013			2012			2011
Ordinary dividends		61.48	%		19.78	%		—
Nontaxable distributions		38.52	%		80.22	%		100.00	%

Total		100.00	%		100.00	%		100.00	%

Organization and Offering Costs

We reimburse our Advisor, or its affiliates, for organization and offering costs it incurs on our behalf, but only to the extent the reimbursement would not cause the selling commissions, the dealer-manager fee and the other organization and offering costs incurred by us to exceed 15% of gross offering proceeds as of the date of the reimbursement. We expect that other organization and offering costs (other than selling commissions and dealer-manager fees) will be approximately 1.25% of the gross offering proceeds. As of December 31, 2013, we paid approximately $65,853,000 in selling commissions and dealer-manager fees to our Dealer Manager and we reimbursed our Advisor, or its affiliates, approximately $13,072,000 in offering expenses, and incurred approximately $761,000 of other organization and offering costs, the total of which represents our maximum liability for organization and offering costs as of December 31, 2013.

Selling commissions and dealer-manager fees are charged to stockholders’ equity. When accrued, offering costs are charged to stockholders’ equity as such amounts will be reimbursed to our Advisor, or its affiliates, from the gross proceeds of the Offering. For a further discussion of other organization and offering costs, see Note 13—“Related-Party Transactions and Arrangements” to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

Notes Receivables

We have invested, and may continue to invest, in notes receivables, including first mortgage loans, real estate-related bridge loans, construction loans and mezzanine loans. As of December 31, 2013, we had investments in five real estate-related notes receivables, which represented loans held for investment and intended to be held to maturity. As of December 31, 2013, the aggregate balance on the investments in real estate-related notes receivables was $54,080,000. For a further discussion of investments in real estate-related notes receivables, see Note 6—“Investment in Real Estate-Related Notes Receivables” to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

Inflation

We are exposed to inflation risk as income from long-term leases is the primary source of our cash flows from operations. There are provisions in certain of our tenant leases that are intended to protect us from, and mitigate the risk of, the impact of inflation. These provisions include reimbursement billings for operating expenses, pass-through charges and real estate tax and insurance reimbursements. However, due to the long-term nature of our leases, among other factors, the leases may not re-set frequently enough to adequately offset the effects of inflation.

Liquidity and Capital Resources

Generally, our sources of funds will be primarily met from our Offering, operating cash flows and additional borrowings. We believe that these cash resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other sources within the next 12 months. Our ability to continue to raise funds through our Offering is dependent on general economic conditions, general

market conditions for REITs and our operating performance. The number of properties we acquire and other investments we make will depend upon the number of shares sold in the Offering and the resulting amount of net proceeds available for investment. We expect to experience a relative increase in liquidity as additional subscriptions for shares of our common stock are received and a relative decrease in liquidity as net offering proceeds are expended in connection with the acquisition, management and operation of our real estate and real estate-related investments. Our principal demand for funds are for acquisitions of real estate and real estate-related investments, to pay operating expenses and interest on our indebtedness and to pay distributions to our stockholders. In addition, we require resources to make certain payments to our Advisor, or its affiliates, and our Dealer Manager, which, during the Offering, include payments to our Advisor and its affiliates for reimbursement of other organizational and offering costs, and to our Dealer Manager and its affiliates for selling commissions and dealer-manager fees.

Our Advisor evaluates potential additional investments and engages in negotiations with real estate sellers, developers, brokers, investment managers, lenders and others on our behalf. Until we invest all of the proceeds of the Offering in properties and real estate-related securities, we invest the uninvested proceeds in short-term, highly liquid or other authorized investments. Such short-term investments will not earn significant returns, and we cannot predict how long it will take to fully invest the proceeds in properties and real estate-related securities.

When we acquire a property, our Advisor prepares a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan also sets forth the anticipated sources of the necessary capital, which may include a line of credit or other loans established with respect to the investment, operating cash generated by the investment, additional equity investments from us or our joint venture partners or, when necessary, capital reserves. Any capital reserve would be established from the gross proceeds of the Offering, proceeds from sales of other investments, operating cash generated by other investments or other cash on hand. In some cases, a lender may require us to establish capital reserves for a particular investment. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs.

KeyBank Credit Facility

As of December 31, 2013, the maximum principal amount committed under the KeyBank Credit Facility was $225,000,000, consisting of a $170,000,000 revolving line of credit, with a maturity date of August 9, 2016, subject to the Operating Partnership’s right to a 12-month extension, and $55,000,000 in term loans, with a maturity date of August 9, 2017, subject to the Operating Partnership’s right to a 12-month extension. The KeyBank Credit Facility can be increased to $350,000,000 under certain circumstances. Generally, proceeds of the KeyBank Credit Facility are used to acquire our real estate properties.

As of December 31, 2013, the annual interest rate payable under the KeyBank Credit Facility was, at the Operating Partnership’s option, either (a) the London Interbank Offered Rate, plus an applicable margin ranging from 2.25% to 3.00%, which is determined based on the overall leverage of the Operating Partnership; or (b) a base rate, which means, for any day, a fluctuating rate per annum equal to the prime rate for such day, plus an applicable margin ranging from 1.00% to 1.75%, which is determined based on the overall leverage of the Operating Partnership. In addition, we are required to pay a fee on the unused portion of the lender’s commitments under the KeyBank Credit Facility of 0.30% per annum if the average daily amount outstanding balance under the KeyBank Credit Facility is less than 50% of the lenders’ commitments, and 0.20% per annum if the average daily amount outstanding under the KeyBank Credit Facility is greater than 50% of the lender’s commitments. The unused fee is payable quarterly in arrears.

The Operating Partnership entered into interest swap agreements with KeyBank National Association to effectively fix LIBOR on the term loans under the KeyBank Credit Facility at a weighted average rate of 0.91%, resulting in an interest rate under the term loans ranging from 3.16% to 3.91% per annum. The revolving line of

credit and the term loans can be prepaid prior to maturity without penalty; provided, however, that any portion of the term loans that is prepaid may not be reborrowed, and the Operating Partnership may be subject to a breakage fee under the swap agreements, if applicable.

The actual amount of credit available under the KeyBank Credit Facility is a function of certain loan-to-cost, loan-to-value, debt yield and debt service coverage ratios contained in the KeyBank Loan Agreement. The credit available for the Operating Partnership to borrow under the KeyBank Loan Agreement will be a maximum principal amount of the value of the assets that are included in the collateral pool. Each subsidiary of the Operating Partnership in the collateral pool is a party to, and guarantor of, the KeyBank Loan Agreement. As of December 31, 2013, we had drawn down $152,000,000 under the KeyBank Credit Facility and we had an aggregate borrowing base availability of $31,369,000. The KeyBank Credit Facility agreement contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including limitations on the incurrence of debt and limitations on distributions by the properties that serve as collateral for the KeyBank Credit Facility in the event of a default. The KeyBank Credit Facility agreement also imposes the following financial covenants: (i) minimum liquidity thresholds; (ii) a minimum ratio of operating cash flow to fixed charges; (iii) a maximum ratio of liabilities to asset value; (iv) a maximum daily distribution covenant; (v) a minimum quarterly equity raise; (vi) a minimum number of properties in the collateral pool; (vii) a minimum debt yield; and (viii) a minimum tangible net worth. In addition, the KeyBank Credit Facility agreement includes events of default that are customary for credit facilities and transactions of this type. We believe we were in compliance with all financial covenant requirements at December 31, 2013.

Notes Payable

For a discussion of our notes payable, see Note 8—“Notes Payable” to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

Cash Flows

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Operating Activities. Net cash flows provided by operating activities for the year ended December 31, 2013 was approximately $25.7 million, compared to net cash flows provided by operating activities for the year ended December 31, 2012 of $1.3 million. For the year ended December 31, 2013, net cash flows provided by operating activities related primarily to increased rental and other revenue received in cash, offset by the payment of acquisition related fees and expenses, other assets and general and administrative expenses. We anticipate net cash flows from operating activities to increase as we acquire additional properties.

Investing Activities. Net cash flows used in investing activities for the years ended December 31, 2013 and 2012 was approximately $578.8 million and $345.8 million, respectively. For the year ended December 31, 2013, net cash flows used in investing activities related to the acquisition of 17 real estate properties in the amount of $548.6 million, investments in real estate-related notes receivable in the amount of $73.8 million, origination costs and commitment fees related to investments in real estate-related notes receivable in the amount of $0.7 million, payments of real estate escrow deposits in the amount of $7.0 million, other deposits in the amount of $0.2 million and capital expenditures in the amount of $0.4 million, offset by collections of notes receivable in the amount of $44.3 million and collections of real estate escrow deposits of $7.6 million. For the year ended December 31, 2012, net cash used in investing activities related to the acquisition of 14 real estate properties in the amount of $365.5 million, investments in real estate-related notes receivable in the amount of $23.1 million, payments of real estate escrow deposits in the amount of $21.7 million, other deposits in the amount of $0.2 million and capital expenditures in the amount of $1.1 million, offset by collections of real estate escrow deposits of $65.8 million. Net cash flows used in investing activities is dependent upon the amount of our offering proceeds invested in real estate and real estate-related investments.

Financing Activities. Net cash flows provided by financing activities for the years ended December 31, 2013 and 2012 was approximately $556.3 million and $340.0 million, respectively. For the year ended December 31, 2013, such cash flows related primarily to funds raised from investors in our Offering of $514.0 million, proceeds from our mortgage notes payable of $47.6 million, proceeds from the KeyBank Credit Facility of $166.5 million, collection of escrow funds of $3.1 million, offset by principal payments on our mortgage notes payable in the amount of $3.3 million, payments on the KeyBank Credit Facility of $70.0 million, deferred financing costs of $4.4 million, cash distributions to our stockholders of $14.2 million, offering costs of $57.4 million, distributions to noncontrolling interests in a consolidated partnership of $3.3 million, repurchase of shares of our common stock of $0.8 million, payments to escrow funds of $2.7 million and purchase of noncontrolling interest in a consolidated partnership related to the Philadelphia Data Center of $18.8 million. We anticipate cash flows from financing activities to increase in the future as we raise additional funds in our Offering and incur additional debt to acquire more properties.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Operating Activities. Net cash flows provided by operating activities for the year ended December 31, 2012 was approximately $1.3 million, compared to net cash flows used in operating activities for the year ended December 31, 2011 of $0.1 million. For the year ended December 31, 2012, net cash flows provided by operating activities related primarily to increased rental and other revenue received in cash, offset by the payment of acquisition related fees and expenses, rental and parking expenses and general and administrative expenses. We anticipate net cash flows from operating activities to increase as we acquire additional properties.

Investing Activities. Net cash flows used in investing activities for the years ended December 31, 2012 and 2011 was approximately $345.8 million and $74.3 million, respectively. For the year ended December 31, 2012, net cash flows used in investing activities related to the acquisition of 14 real estate properties in the amount of $365.5 million, investments in real estate-related notes receivable in the amount of $23.1 million, payments of real estate escrow deposits in the amount of $21.7 million, other deposits in the amount of $0.2 million and capital expenditures in the amount of $1.1 million, offset by collections of real estate escrow deposits of $65.8 million. For the year ended December 31, 2011, net cash used in investing activities related to the acquisition of one real estate property in the amount of $28.9 million, investments in real estate-related notes receivable in the amount of $0.5 million, payments of real estate escrow deposits in the amount of $44.7 million and investments in nonconsolidated partnerships in the amount of $0.2 million. Net cash flows used in investing activities is dependent upon the amount of our offering proceeds invested in real estate and real estate-related investments.

Financing Activities. Net cash flows provided by financing activities for the years ended December 31, 2012 and 2011 was approximately $340.0 million and $83.2 million, respectively. For the year ended December 31, 2012, such cash flows related primarily to funds raised in our Offering of $167.5 million, proceeds from our mortgage loan payable of $142.3 million, proceeds from the KeyBank Credit Facility of $91.0 million, collection of escrow funds of $1.6 million, proceeds from noncontrolling interest in consolidated partnerships of $15.0 million, offset by principal payments on our mortgage loan payables in the amount of $1.3 million, payments on the Key Bank Credit Facility of $35.5 million, deferred financing costs of $3.7 million, cash distributions to our stockholders of $3.2 million, offering costs of $18.5 million, distributions to noncontrolling interests in consolidated partnerships of $2.6 million, repurchase of shares of our common stock of $0.2 million, payments to escrow funds of $4.9 million and purchase of noncontrolling interest in a consolidated partnership related to the Richardson Data Center of $7.5 million. We anticipate cash flows from financing activities to increase in the future as we raise additional funds in our Offering and incur additional debt to acquire more properties.

Distributions

The amount of distributions payable to our stockholders is determined by our board of directors and is dependent on a number of factors, including funds available for distribution, financial condition, capital

expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Code. Our board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured. Our Advisor may also defer, suspend and/or waive fees and expense reimbursements if we have not generated sufficient cash flow from our operations and other sources to fund distributions. Additionally, our organizational documents permit us to pay distributions from unlimited amounts of any source, and we may use sources other than operating cash flows to fund distributions, including proceeds from our offering proceeds, which may reduce the amount of capital we ultimately invest in properties or other permitted investments.

We have funded distributions with operating cash flow from our properties and offering proceeds raised in our Offering. To the extent that we do not have taxable income, distributions paid will be considered a return of capital to stockholders. The following table shows distributions paid during the years ended December 31, 2013 and 2012:


	Year Ended December 31, 2013					Year Ended December 31, 2012
Distributions paid in cash—common stockholders	$	14,176,000				$	3,206,000
Distributions reinvested (shares issued)		12,217,000					2,765,000

Total distributions	$	26,393,000	(1)			$	5,971,000

Source of distributions:
Cash flows provided by operations(2)	$	14,176,000		54	%	$	1,277,000	21	%
Offering proceeds from issuance of common stock		—		—			1,929,000	32	%
Offering proceeds from issuance of common stock pursuant to the DRIP		12,217,000		46	%		2,765,000	47	%

Total sources	$	26,393,000		100	%	$	5,971,000	100	%

(1)	Total distributions declared but not paid as of December 31, 2013 were $4.2 million for common stockholders. These distributions were paid on January 2, 2014.

(2)	Percentages were calculated by dividing the respective source amount by the total sources of distributions.

For the year ended December 31, 2013, we paid and declared distributions of approximately $26.4 million to common stockholders including shares issued pursuant to the DRIP, as compared to FFO and MFFO for the twelve months ended December 31, 2013 of $28.1 million and $26.6 million, respectively. The payment of distributions from sources other than FFO or MFFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds.

For a discussion of distributions paid subsequent to December 31, 2013, see Note 22—“Subsequent Events” to the consolidated financial statements included in this Annual Report on Form 10-K.

Capital Expenditures

We estimate that we will require approximately $2.7 million in expenditures for capital improvements over the next 12 months. As of December 31, 2013, we had $2.6 million of restricted cash in lender controlled escrow reserve accounts for such capital expenditures. We cannot provide assurance, however, that we will not exceed these estimated expenditure levels.

Financing

We anticipate that our aggregate borrowings, both secured and unsecured, will not exceed 50.0% of the combined cost or market value of our real estate and real estate-related investments following completion of the Offering. For these purposes, the fair market value of each asset is equal to the purchase price paid for the asset

or, if the asset was appraised subsequent to the date of purchase, then the fair market value will be equal to the value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment. As of December 31, 2013, our borrowings were 35.5% of the fair market value of our real estate and real estate-related investments.

Under our charter, we have a limitation on borrowing that precludes us from borrowing in excess of 300.0% of our net assets, without the approval of a majority of our independent directors. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles) valued at cost prior to deducting depreciation, amortization, bad debt and other non-cash reserves, less total liabilities. Generally, the preceding calculation is expected to approximate 75.0% of the aggregate cost of our real estate and real estate-related investments before depreciation, amortization, bad debt and other similar non-cash reserves. In addition, we may incur mortgage debt and pledge some or all of our properties as security for that debt to obtain funds to acquire additional real properties or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90.0% of our annual REIT taxable income to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes. As of each of March 14, 2014 and December 31, 2013, our leverage did not exceed 300.0% of the value of our net assets.

Commitments and Contingencies

For a discussion of our commitments and contingencies, see Note 12—“Commitments and Contingencies” to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

Debt Service Requirements

One of our principal liquidity needs is the payment of principal and interest on outstanding indebtedness. As of December 31, 2013, we had $201.2 million of notes payable outstanding and $152.0 million outstanding under the KeyBank Credit Facility. We are required by the terms of certain loan documents to meet certain covenants, such as financial ratios and reporting requirements. As of December 31, 2013, we believe we were in compliance with all such covenants and requirements on our mortgage loans payable and the KeyBank Credit Facility, and we expect to remain in compliance with all such requirements for the next 12 months.

In addition, during the year ended December 31, 2013, we entered into five derivative instruments for the purpose of managing or hedging our interest rate risks. The aggregate notional amount under our swap agreements is $119.1 million. We have agreements with each derivative counterparty that contain cross-default provisions, whereby if we default on certain of our unsecured indebtedness, then we could also be declared in default on our derivative obligations, resulting in an acceleration of payment thereunder. As of December 31, 2013, we were in compliance with all such cross-default provisions and expect to remain in compliance with all such requirements for the next 12 months.

Contractual Obligations

As of December 31, 2013, we had approximately $353,177,000 of debt outstanding, of which $201,177,000 related to notes payable and $152,000,000 related to the Key Bank Credit Facility. See Note 8—“Notes Payable” and Note 9—“Credit Facility” to the consolidated financial statements that are a part of this Annual Report on Form 10-K for certain terms of the debt outstanding. Our contractual obligations as of December 31, 2013 were as follows (amounts in thousands):


	Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Total
Principal payments—fixed rate debt	$	2,523	$	19,693	$	62,570	$	52,263	$	137,049
Interest payments—fixed rate debt		6,429		13,917		9,046		9,367		38,759
Principal payments—variable rate debt fixed through interest rate swap agreements(1)		738		1,817		116,573		—		119,128
Interest payments—variable rate debt fixed through interest rate swap agreements(2)		4,385		9,786		5,315		—		19,486
Principal payments—variable rate debt		—		97,000		—		—		97,000
Interest payments—variable rate debt(3)		2,146		4,683		—		—		6,829

Total	$	16,221	$	146,896	$	193,504	$	61,630	$	418,251

(1)	As of December 31, 2013, we had $119.1 million outstanding on notes payable and borrowings under the KeyBank Credit Facility that were fixed through the use of interest rate swap agreements.

(2)	We used the fixed rates under our interest rate swap agreements as of December 31, 2013 to calculate the debt payment obligations in future periods.

(3)	As of December 31, 2013, the weighted average interest rate on the variable debt obligations under the KeyBank Credit Facility was 2.41%, which we used to calculate future interest payments.

Off-Balance Sheet Arrangements

As of December 31, 2013, we had no off-balance sheet arrangements.

Material Related-Party Transactions and Arrangements

We have entered into agreements with our Advisor and its affiliates, whereby we agree to pay certain fees to, or reimburse certain expenses of, our Advisor or its affiliates for acquisition fees and expenses, organization and offering expenses, sales commissions, dealer-manager fees, asset and property management fees and reimbursement of operating costs. Refer to Note 13—“Related-Party Transactions and Arrangements” to our consolidated financial statements that are a part of this Annual Report on Form 10-K for a detailed discussion of the various related-party transactions and agreements.

Funds from Operations and Modified Funds from Operations

One of our objectives is to provide cash distributions to our stockholders from cash generated by our operations. The purchase of real estate assets and real estate-investments, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate cash from operations. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as FFO, which we believe is an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplement performance measure. FFO is not equivalent to our net income (loss) as determined under GAAP.

We define FFO, consistent with NAREIT’s definition, as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of property and asset impairment write-downs, plus depreciation

and amortization of real estate assets, and after adjustments for unconsolidated partnership and joint ventures. Adjustments for unconsolidated partnership and joint ventures will be calculated to reflect FFO on the same basis.

We, along with the others in the real estate industry, consider FFO to be an appropriate supplemental measure of a REIT’s operating performance because it is based on a net income (loss) analysis of property portfolio performance that excludes non-cash items such as depreciation and amortization and asset impairment write-downs, which we believe provides a more complete understanding of our performance to investors and to our management, and when compared year over year, reflects the impact on our operations from trends in occupancy.

Historical accounting convention (in accordance with GAAP) for real estate assets requires companies to report its investment in real estate at its carrying value, which consists of capitalizing the cost of acquisitions, development, construction, improvements and significant replacements, less depreciation and amortization and asset impairment write-downs, if any, which is not necessarily equivalent to the fair market value of its investment in real estate assets.

The historical accounting convention requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, which could be the case if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since fair value of real estate assets historically rise and fall with market conditions including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation could be less informative.

In addition, we believe it is appropriate to disregard asset impairment write-downs as it is a non-cash adjustment to recognize losses on prospective sales of real estate assets. Since losses from sales of real estate assets are excluded from FFO, we believe it is appropriate that asset impairment write-downs in advancement of realization of losses should be excluded. Impairment write-downs are based on negative market fluctuations and underlying assessments of general market conditions, which are independent of our operating performance, including, but not limited to, a significant adverse change in the financial condition of our tenants, changes in supply and demand for similar or competing properties, changes in tax, real estate, environmental and zoning law, which can change over time. When indicators of potential impairment suggest that the carrying value of real estate and related assets may not be recoverable, we assess the recoverability by estimating whether we will recover the carrying value of the asset through undiscounted future cash flows and eventual disposition (including, but not limited to, net rental and lease revenues, net proceeds on the sale of property and any other ancillary cash flows at a property or group level under GAAP). If based on this analysis, we do not believe that we will be able to recover the carrying value of the real estate asset, we will record an impairment write-down to the extent that the carrying value exceeds the estimated fair value of the real estate asset. Testing for indicators of impairment is a continuous process and is analyzed on a quarterly basis. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and that we intend to have a relatively limited term of our operations, it could be difficult to recover any impairment charges through the eventual sale of the property. No impairment losses have been recorded to date.

In developing estimates of expected future cash flow, we make certain assumptions regarding future market rental income amounts subsequent to the expiration of current lease arrangements, property operating expenses, terminal capitalization and discount rates, the expected number of months it takes to re-lease the property, required tenant improvements and the number of years the property will be held for investment. The use of

alternative assumptions in the future cash flow analysis could result in a different determination of the property’s future cash flows and a different conclusion regarding the existence of an asset impairment, the extent of such loss, if any, as well as the carrying value of the real estate asset.

Publicly registered, non-listed REITs, such as ours, typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operations. While other start up entities may also experience significant acquisition activity during their initial years, we believe that publicly registered, non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. We will use the proceeds raised in our offering to acquire real estate assets and real estate investments, and we intend to begin the process of achieving a liquidity event (i.e., listing of our shares of common stock on a national securities exchange, a merger or sale, the sale of all or substantially all of our assets, or another similar transaction) within five years after the completion of our offering stage, which is generally comparable to other publicly registered, non-listed REITs. Thus, we do not intend to continuously purchase real estate assets and intend to have a limited life. Due to these factors and other unique features of publicly registered, non-listed REITS, the Investment Program Association, or the IPA, an industry trade group, has standardized a measure known as modified funds from operations, or MFFO, which we believe to be another appropriate supplemental measure to reflect the operating performance of a publicly registered, non-listed REIT. MFFO is a metric used by management to evaluate sustainable performance and dividend policy. MFFO is not equivalent to our net income (loss) as determined under GAAP.

We define MFFO, a non-GAAP measure, consistent with the IPA’s definition: FFO further adjusted for the following items included in the determination of GAAP net income (loss); acquisition fees and expenses; amounts related to straight-line rental income and amortization of above and below intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for a consolidated and unconsolidated partnership and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Our MFFO calculation complies with the IPA’s Practice Guideline, described above. In calculating MFFO, we exclude paid and accrued acquisition fees and expenses that are reported in our consolidated statements of comprehensive income (loss), amortization of above and below-market leases, amounts related to straight-line rents (which are adjusted in order to reflect such payments from a GAAP accrual basis to closer to an expected to be received cash basis of disclosing the rent and lease payments); and the adjustments of such items related to noncontrolling interests in the Operating Partnership. The other adjustments included in the IPA’s guidelines are not applicable to us.

Since MFFO excludes acquisition fees and expenses, it should not be construed as a historic performance measure. Acquisition fees and expenses are paid in cash by us, and we have not set aside or put into escrow any specific amount of proceeds from our offerings to be used to fund acquisition fees and expenses. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Such fees and expenses will not be reimbursed by our advisor or its affiliates and third parties, and therefore if there are no further proceeds from the sale of shares of our common stock to fund future acquisition fees and expenses, such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties, or from ancillary cash flows. As a result, the amount of proceeds available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds. Nevertheless, our advisor or its affiliates will not accrue any claim on our assets if acquisition fees and expenses are not paid from the proceeds of our offerings. Under GAAP, acquisition fees and expenses related to the acquisition of properties determined to be business combinations are expensed as incurred, including investment transactions that are no longer under consideration, and are included in acquisition related expenses in the accompanying consolidated statements of comprehensive income (loss) and acquisition fees and expenses associated with transactions determined to be an asset purchase are capitalized.

All paid and accrued acquisition fees and expenses have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the real estate asset, these fees and expenses and other costs related to such property. In addition, MFFO may not be an indicator of our operating performance, especially during periods in which properties are being acquired.

In addition, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustment to net income (loss) in determining cash flows from operations in accordance with GAAP.

We use MFFO and the adjustments used to calculate it in order to evaluate our performance against other publicly registered, non-listed REITs, which intend to have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to publicly registered, non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures may be useful to investors. For example, acquisition fees and expenses are intended to be funded from the proceeds of our offering and other financing sources and not from operations. By excluding acquisition fees and expenses, the use of MFFO provides information consistent with management’s analysis of the operating performance of its real estate assets. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such charges that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to assist management and investors in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) as an indication of our performance, as an indication of our liquidity, or indicative of funds available to fund our cash needs, including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other measurements as an indication of our performance. MFFO has limitations as a performance measure in an offering such as ours where the price of a share of common stock is stated value and there is no asset value determination during the offering stage for a period thereafter. MFFO may be useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. MFFO is not a useful measure in evaluating net asset value since impairment write-downs are taken into account in determining net asset value but not in determining MFFO.

FFO and MFFO, as described above, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operational performance. The method used to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operation performance and considered more prominently than the non-GAAP FFO and measures and the adjustments to GAAP in calculating FFO and MFFO. MFFO has not been scrutinized to the level of other similar non-GAAP performance measures by the SEC or any other regulatory body.

The following is a reconciliation of net income/(loss) attributable to controlling interests, which is the most directly comparable GAAP financial measure, to FFO and MFFO for the years ended December 31, 2013, 2012 and 2011 (in thousands, except share data):


	For the Year Ended December 31,
	2013			2012			2011
Net income (loss) attributable to the Company	$	12,658		$	(7,700	)	$	(1,061	)
Adjustments:
Depreciation and amortization—real estate		18,749			8,080			517
Noncontrolling interest’s shares of the above adjustments related to the consolidated partnerships		(3,299	)		(3,369	)		(229	)

FFO	$	28,108		$	(2,989	)	$	(773	)

Adjustments:
Acquisition related expenses(1)	$	5,615		$	11,474		$	1,084
Amortization of above and below-market leases(2)		(3,758	)		(2,407	)		(40	)
Amortization of straight-line rents(3)		(5,398	)		(2,402	)		(102	)
Noncontrolling interests’ share of the above adjustments related to the consolidated partnerships		2,041	(4)		1,304	(5)		(392	)(6)

MFFO	$	26,608		$	4,980		$	(223	)

Weighted average common shares outstanding—basic		42,207,714			9,933,490			1,026,976

Weighted average common shares outstanding—diluted		42,224,944			9,933,490			1,026,976

Net income (loss) per common share—basic	$	0.30		$	(0.78	)	$	(1.03	)

Net income (loss) per common share—diluted	$	0.30		$	(0.78	)	$	(1.03	)

FFO per common share—basic	$	0.67		$	(0.30	)	$	(0.75	)

FFO per common share—diluted	$	0.67		$	(0.30	)	$	(0.75	)

(1)

In evaluating investments in real estate assets, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for publicly registered, non-listed REITs that have completed their acquisitions activities and have other similar operating characteristics. By excluding expensed acquisition related expenses, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments in cash to our Advisor and third parties. Acquisition fees and expenses incurred in a business combination, under GAAP, are considered operating expenses and as expenses included in the determination of net income (loss), which is a performance measure under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property.

(2)

Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of real estate-related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges related to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate.

(3)	Under GAAP, rental revenue is recognized on a straight-line basis over the terms of the related lease (including rent holidays if applicable). This may result in income recognition that is significantly different

than the underlying contract terms. By adjusting for the change in deferred rent receivables, MFFO may provide useful supplemental information on the realized economic impact of lease terms, providing insight on the expected contractual cash flows of such lease terms, and aligns with our analysis of operating performance.

(4)	Of this amount, $583,000 related to straight-line rents, $1,458,000 related to above and below-market leases.

(5)	Of this amount, $785,000 related to straight-line rents, $1,416,000 related to above and below-market leases and $(897,000) related to acquisition expenses.

(6)	Of this amount, $45,000 related to straight-line rents, $18,000 related to above and below-market leases and $(455,000) related to acquisition expenses.

The following is a reconciliation of net loss attributable to the Company, which is the most directly comparable GAAP financial measure to FFO and MFFO for the following quarterly periods (in thousands except share data):


	Quarter Ended
	December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013
Net income attributable to the Company	$	5,944		$	3,850		$	2,001		$	863
Adjustments:
Depreciation and amortization—real estate		6,158			4,727			4,105			3,759
Noncontrolling interest’s shares of the above adjustments related to the consolidated partnership		(830	)		(826	)		(824	)		(819	)

FFO	$	11,272		$	7,751		$	5,282		$	3,803

Adjustments:
Acquisition related expenses(1)	$	1,016		$	1,402		$	1,601		$	1,596
Amortization of above and below-market leases(2)		(961	)		(958	)		(972	)		(867	)
Amortization of straight-line rents(3)		(1,767	)		(1,311	)		(1,136	)		(1,184	)
Noncontrolling interests’ share of the above adjustments related to the consolidated partnership		503	(4)		509	(5)		515	(6)		514	(7)

MFFO	$	10,063		$	7,393		$	5,290		$	3,862

Weighted average common shares outstanding—basic		63,815,605			46,757,918			33,830,429			23,938,747

Weighted average common shares outstanding—diluted		63,830,305			46,774,585			33,844,471			23,954,477

Net income per common share—basic	$	0.09		$	0.08		$	0.06		$	0.04

Net income per common share—diluted	$	0.09		$	0.08		$	0.06		$	0.04

FFO per common share—basic	$	0.18		$	0.17		$	0.16		$	0.16

FFO per common share—diluted	$	0.18		$	0.17		$	0.16		$	0.16

(1)

(2)

(3)

Under GAAP, rental revenue is recognized on a straight-line basis over the terms of the related lease (including rent holidays if applicable). This may result in income recognition that is significantly different than the underlying contract terms. By adjusting for the change in deferred rent receivables, MFFO may provide useful supplemental information on the realized economic impact of lease terms, providing insight on the expected contractual cash flows of such lease terms, and aligns with our analysis of operating performance.

(4)	Of this amount, $138,000 related to straight-line rents, $365,000 related to above and below-market leases.

(5)	Of this amount, $145,000 related to straight-line rents, $364,000 related to above and below-market leases.

(6)	Of this amount, $151,000 related to straight-line rents, $364,000 related to above and below-market leases.

(7)	Of this amount, $149,000 related to straight-line rents, $365,000 related to above and below-market leases.

Subsequent Events

For a discussion of subsequent events, see Note 22—“Subsequent Events” to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. There were no material changes in our market risk exposures between the years ended December 31, 2013 and 2012. In pursuing our business plan, the primary market risk to which we are exposed is interest rate risk.

We have obtained variable rate debt financing to fund certain property acquisitions, and we are exposed to changes in the one-month LIBOR. Our objectives in managing interest rate risks seek to limit the impact of interest rate changes on operations and cash flows, and to lower overall borrowing costs. To achieve these objectives we will borrow primarily at interest rates with the lowest margins available and, in some cases, with the ability to convert variable interest rates to fixed rates.

We have entered, and may continue to enter, into derivative financial instruments, such as interest rate swaps, in order to mitigate our interest rate risk on a given variable rate financial instrument. To the extent we do, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the

counterparty and, therefore, it does not possess credit risk. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We manage the market risk associated with interest rate contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. We have not entered, and do not intend to enter, into derivative or interest rate transactions for speculative purposes. We may also enter into rate-lock arrangements to lock interest rates on future borrowings.

As of December 31, 2013, we had eight fixed rate notes payable in the aggregate amount of $137.0 million, three variable rate notes payable in the aggregate amount of $64.2 million that were fixed through interest rate swap agreements, and $55.0 million borrowed under the KeyBank Credit Facility that was fixed through interest rate swap agreements. As of December 31, 2013, the weighted average interest rate on notes payable and the KeyBank Credit Facility that was fixed through interest rate swap agreements was 4.57%.

As of December 31, 2013, $97.0 million of the $152.0 million outstanding on the KeyBank Credit Facility were subject to variable interest rates. Revolving loans under the KeyBank Credit Facility bore interest at a weighted average rate of 2.41%. As of December 31, 2013, an increase of 50 basis points in interest rates would result in a change in interest expense of $0.5 million per year, assuming all of our derivatives remain effective hedges.

As of December 31, 2013, we had five interest rate swap agreements outstanding, which mature on various dates from October 2017 through December 2018, with an aggregate notional amount under the swap agreements of $119.1 million and an aggregate net fair value of $0.6 million. The fair value of these interest rate swap agreements is dependent upon existing market interest rates and swap spreads. As of December 31, 2013, an increase of 50 basis points in the market rates of interest would result in an increase to the fair value of these interest rate swaps of $2.8 million. These interest rate swaps were designated as hedging instruments.

We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.

Item 8.

Financial Statements and Supplementary Data.

See the index at Part IV, Item 15. Exhibits and Financial Statement Schedules.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.

Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, we conducted an evaluation as of December 31, 2013 under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as

defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of December 31, 2013, were effective, in all material respects, for the purposes stated above.

(b) Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision, and with the participation, of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission, or the Original Framework. Based on our evaluation under the Original Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2013.

(c) Changes in internal control over financial reporting. There have been no changes in our internal controls over financial reporting that occurred during the three months ended December 31, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information.

None.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2014 annual meeting of stockholders.

Item 11.

Executive Compensation.

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2014 annual meeting of stockholders.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2014 annual meeting of stockholders.

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2014 annual meeting of stockholders.

Item 14.

Principal Accounting Fees and Services.

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2014 annual meeting of stockholders.

Part IV

Item 15.

Exhibits and Financial Statement Schedules.

The following documents are filed as part of this Annual Report:

(a)(1) Consolidated Financial Statements:

The index of the consolidated financial statements contained herein is set forth on page F-1 hereof.

(a)(2) Financial Statement Schedules:

The financial statement schedules listed in the index to consolidated financial statements on Page F-1 hereof.

No additional financial statement schedules are presented since the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is enclosed in the Consolidated Financial Statements and notes thereto.

(a)(3) Exhibits:

The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this Annual Report.

(b) Exhibits:

See Item 15(a)(3) above.

See Item 15(a)(2) above.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

OF CARTER VALIDUS MISSION CRITICAL REIT, INC.


	Page
Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2013 and 2012		F-3
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2013, 2012 and 2011		F-4
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2013, 2012 and 2011		F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011		F-6
Notes to Consolidated Financial Statements		F-7

Financial Statement Schedules

Schedule III—Real Estate Assets and Accumulated Depreciation and Amortization		S-1
Schedule IV—Mortgage Loans on Real Estate		S-3

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

Carter Validus Mission Critical REIT, Inc.

We have audited the accompanying consolidated balance sheets of Carter Validus Mission Critical REIT, Inc. (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Carter Validus Mission Critical REIT, Inc. at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ Ernst & Young, LLP

Certified Public Accountants

Tampa, Florida

March 19, 2014

F-2

PART 1. FINANCIAL STATEMENTS

CARTER VALIDUS MISSION CRITICAL REIT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)


	December 31,
	2013			2012
ASSETS
Real estate:
Land ($4,280 and $4,280 related to VIE)	$	92,052		$	34,577
Buildings and improvements ($95,529 and $95,182 related to VIE)		791,574			357,559
Acquired intangible assets ($16,189 and $16,187 related to VIE)		121,438			60,019

		1,005,064			452,155
Less: accumulated depreciation and amortization ($8,419 and $4,090 related to VIE)		(27,640	)		(8,732	)

Total real estate, net ($107,579 and $111,559 related to VIE)		977,424			443,423
Cash and cash equivalents ($411 and $463 related to VIE)		7,511			4,377
Real estate-related notes receivables		54,080			23,711
Other assets ($3,968 and $4,078 related to VIE)		25,649			12,286

Total assets	$	1,064,664		$	483,797

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Notes payable ($53,746 and $54,420 related to VIE)	$	201,177		$	156,847
Credit facility		152,000			55,500
Accounts payable due to affiliates ($15 and $104 related to VIE)		696			5,674
Accounts payable and other liabilities ($1,411 and $1,536 related to VIE)		15,546			7,876
Intangible lease liabilities, less accumulated amortization of $6,501 and $2,583, respectively ($16,410 and $18,375 related to VIE)		53,962			54,022

Total liabilities		423,381			279,919
Stockholders’ equity:
Preferred stock, $0.01 par value per share, 50,000,000 shares authorized; none issued and outstanding		—			—
Common stock, $0.01 par value per share, 300,000,000 shares authorized; 73,238,145 and 20,261,611 shares issued, respectively; 73,137,569 and 20,241,478 shares outstanding, respectively		731			202
Additional paid-in capital		641,019			172,602
Accumulated distributions in excess of earnings		(33,154	)		(16,393	)
Accumulated other comprehensive income (loss)		600			(963	)

Total stockholders’ equity		609,196			155,448
Noncontrolling interests in consolidated partnerships		32,086			48,429
Noncontrolling interests in operating partnership		1			1

Total equity		641,283			203,878

Total liabilities and stockholders’ equity	$	1,064,664		$	483,797

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

F-3

CARTER VALIDUS MISSION CRITICAL REIT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except shares and per share amounts)


	For the Year Ended December 31,
	2013			2012			2011
Revenue:
Rental and parking revenue	$	52,944		$	21,955		$	1,286
Tenant reimbursement revenue		9,538			5,799			59
Real estate-related notes receivables interest income		5,817			692			—

Total revenue		68,299			28,446			1,345
Expenses:
Rental and parking expenses		11,915			7,066			96
General and administrative expenses		2,458			1,039			529
Acquisition related expenses		5,615			11,474			1,084
Asset management fees		2,343			133			146
Depreciation and amortization		18,749			8,080			517

Total expenses		41,080			27,792			2,372

Income (loss) from operations		27,219			654			(1,027	)

Other income (expense):
Interest and other income (expense)		53			(34	)		1
Interest expense		(12,593	)		(6,260	)		(413	)

Total other expense		(12,540	)		(6,294	)		(412	)

Consolidated net income (loss)		14,679			(5,640	)		(1,439	)
Net (income) loss attributable to noncontrolling interests in consolidated partnerships		(2,021	)		(2,060	)		378

Net income (loss) attributable to the Company	$	12,658		$	(7,700	)	$	(1,061	)

Other comprehensive income (loss):
Unrealized gain (loss) on interest rate swaps		825			(1,011	)		—
Reclassification of previous unrealized loss on interest rate swaps into net income		738			48			—

Other comprehensive income (loss)		1,563			(963	)		—

Comprehensive income (loss) attributable to the Company	$	14,221		$	(8,663	)	$	(1,061	)

Weighted average number of common shares outstanding:
Basic		42,207,714			9,933,490			1,026,976

Diluted		42,224,944			9,933,490			1,026,976

Net income (loss) per common share attributable to common stockholders:
Basic	$	0.30		$	(0.78	)	$	(1.03	)

Diluted	$	0.30		$	(0.78	)	$	(1.03	)

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

F-4

CARTER VALIDUS MISSION CRITICAL REIT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except for share data)


	Common Stock						Additional Paid in Capital			Accumulated Distributions in Excess of Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests in Operating Partnership		Noncontrolling Interests in Consolidated Partnerships			Total Stockholders’ Equity
	No. of Shares			Par Value			Additional Paid in Capital			Accumulated Distributions in Excess of Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests in Operating Partnership		Noncontrolling Interests in Consolidated Partnerships			Total Stockholders’ Equity
Balance, December 31, 2010		20,000		$	—		$	200		$	(65	)	$	—		$	1	$	—		$	136
Issuance of common stock		3,081,139			31			30,593			—			—			—		—			30,624
Issuance of common stock under the distribution reinvestment plan		26,280			—			250			—			—			—		—			250
Contributions from noncontrolling interests		—			—			—			—			—			—		40,406			40,406
Distributions declared to common stockholders		—			—			—			(645	)		—			—		—			(645	)
Commissions on sale of common stock and related dealer-manager fees		—			—			(2,816	)		—			—			—		—			(2,816	)
Other offering costs		—			—			(1,736	)		—			—			—		—			(1,736	)
Stock-based compensation		—			—			26			—			—			—		—			26
Net loss		—			—			—			(1,061	)		—			—		(378	)		(1,439	)

Balance, December 31, 2011		3,127,419		$	31		$	26,517		$	(1,771	)	$	—		$	1	$	40,028		$	64,806

Issuance of common stock		16,839,443			168			167,345			—			—			—		—			167,513
Vesting of restricted stock		3,750			—			—			—			—			—		—			—
Issuance of common stock under the distribution reinvestment plan		291,000			3			2,762			—			—			—		—			2,765
Contributions from noncontrolling interests		—			—			—			—			—			—		15,000			15,000
Distributions to noncontrolling interests		—			—			—			—			—			—		(2,646	)		(2,646	)
Distributions declared to common stockholders		—			—			—			(6,922	)		—			—		—			(6,922	)
Commissions on sale of common stock and related dealer-manager fees		—			—			(15,538	)		—			—			—		—			(15,538	)
Other offering costs		—			—			(6,852	)		—			—			—		—			(6,852	)
Redemption of common stock		(20,134	)		—			(196	)		—			—			—		—			(196	)
Purchase of noncontrolling interests		—			—			(1,487	)		—			—			—		(6,013	)		(7,500	)
Stock-based compensation		—			—			51			—			—			—		—			51
Other comprehensive loss		—			—			—			—			(963	)		—		—			(963	)
Net income (loss)		—			—			—			(7,700	)		—			—		2,060			(5,640	)

Balance, December 31, 2012		20,241,478		$	202		$	172,602		$	(16,393	)	$	(963	)	$	1	$	48,429		$	203,878

Issuance of common stock		51,684,505			517			513,419			—			—			—		—			513,936
Vesting of restricted stock		6,000			—			—			—			—			—		—			—
Issuance of common stock under the distribution reinvestment plan		1,286,028			13			12,204			—			—			—		—			12,217
Distributions to noncontrolling interests		—			—			—			—			—			—		(3,364	)		(3,364	)
Distributions declared to common stockholders		—			—			—			(29,419	)		—			—		—			(29,419	)
Commissions on sale of common stock and related dealer-manager fees		—			—			(47,499	)		—			—			—		—			(47,499	)
Other offering costs		—			—			(5,246	)		—			—			—		—			(5,246	)
Redemption of common stock		(80,442	)		(1	)		(782	)		—			—			—		—			(783	)
Purchase of noncontrolling interests		—			—			(3,750	)		—			—			—		(15,000	)		(18,750	)
Stock-based compensation		—			—			71			—			—			—		—			71
Other comprehensive income		—			—			—			—			1,563			—		—			1,563
Net income		—			—			—			12,658			—			—		2,021			14,679

Balance, December 31, 2013		73,137,569		$	731		$	641,019		$	(33,154	)	$	600		$	1	$	32,086		$	641,283

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

F-5

CARTER VALIDUS MISSION CRITICAL REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	For the Year Ended December 31,
	2013			2012			2011
Cash flows from operating activities:
Consolidated net income (loss)	$	14,679		$	(5,640	)	$	(1,439	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		18,749			8,080			517
Amortization of debt issue costs		1,318			490			15
Amortization of straight-line rent		(5,398	)		(2,402	)		(102	)
Amortization of intangible lease liability		(3,918	)		(2,542	)		(40	)
Amortization of origination costs and commitment fees		(183	)		—			—
Amortization of intangible lease assets		159			135			—
Deferred revenue		1,605			991			—
Stock-based compensation		71			51			26
Changes in operating assets and liabilities:
Accounts payable and other liabilities		502			3,764			1,514
Accounts payable due to affiliates		20			87			249
Other assets, net		(1,912	)		(1,737	)		(830	)

Net cash provided by (used in) operating activities		25,692			1,277			(90	)

Cash flows from investing activities:
Investment in real estate and other assets		(548,587	)		(365,544	)		(28,940	)
Capital expenditures		(449	)		(1,066	)		—
Payments of real estate escrow deposits		(7,005	)		(21,708	)		(44,696	)
Collections of real estate escrow deposits		7,578			65,826			—
Investments in nonconsolidated partnerships		—			—			(171	)
Other deposits		(167	)		(196	)		—
Real estate-related notes receivables advances		(73,766	)		(23,150	)		(514	)
Collections of real estate-related notes receivables		44,300			—			—
Origination costs net of commitment fees related to real estate-related notes receivables		(720	)		—			—

Net cash used in investing activities		(578,816	)		(345,838	)		(74,321	)

Cash flows from financing activities:
Proceeds from notes payable		47,625			142,303			16,000
Payments on notes payable		(3,295	)		(1,306	)		(150	)
Proceeds from credit facility		166,520			91,000			—
Payments of credit facility		(70,020	)		(35,500	)		—
Payments of deferred financing costs		(4,406	)		(3,709	)		(161	)
Repurchase of common stock		(783	)		(196	)		—
Offering costs on issuance of common stock		(57,413	)		(18,425	)		(3,196	)
Distributions to stockholders		(14,176	)		(3,206	)		(222	)
Proceeds from issuance of common stock		513,936			167,513			30,624
Proceeds from noncontrolling interest in consolidated partnerships		—			15,000			40,406
Purchase of noncontrolling interest in consolidated partnerships		(18,750	)		(7,500	)		—
Payments to escrow funds		(2,687	)		(4,994	)		(123	)
Collection of escrow funds		3,071			1,635			—
Distributions to noncontrolling interests in consolidated partnerships		(3,364	)		(2,646	)		—

Net cash provided by financing activities		556,258			339,969			83,178

Net change in cash		3,134			(4,592	)		8,767
Cash and cash equivalents—Beginning of year		4,377			8,969			202

Cash and cash equivalents—End of year	$	7,511		$	4,377		$	8,969

Supplemental disclosure of non-cash transactions:
Common stock issued through distribution reinvestment plan	$	12,217		$	2,765		$	250
Net unrealized gain (loss) on interest rate swap	$	1,563		$	(963	)	$	—
Supplemental cash flow disclosures:
Interest paid	$	10,949		$	5,122		$	343

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

F-6

CARTER VALIDUS MISSION CRITICAL REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2013

Note 1—Organization and Business

Carter Validus Mission Critical REIT, Inc., or the Company, a Maryland corporation, was incorporated on December 16, 2009 and currently is treated and qualifies as a real estate investment trust, or a REIT, under the Internal Revenue Code of 1986, as amended, or the Code, for federal income tax purposes. The Company was organized to acquire and operate a diversified portfolio of income producing commercial real estate, with a focus on the data center and medical sectors, net leased to investment grade and other creditworthy tenants, as well as to make other real estate investments that relate to such property types. The Company operates through two reportable business segments—data centers and medical facilities. Substantially all of the Company’s business is conducted through Carter/Validus Operating Partnership, LP, a Delaware limited partnership, or the Operating Partnership. The Company is the sole general partner of the Operating Partnership. Carter/Validus Advisors, LLC, or the Advisor, the Company’s affiliated advisor, is the sole limited partner of the Operating Partnership. As of December 31, 2013, the Company owned 32 properties (including one property owned through a consolidated partnership) comprising 3.13 million rentable square feet of single-tenant and multi-tenant commercial space located in 24 metropolitan statistical areas, or MSAs. As of December 31, 2013, the rentable space at these properties was 100% leased. As of December 31, 2013, the Company had also invested in real estate-related notes receivables in the aggregate principal amount of $53,130,000. Except as the context otherwise requires, “we,” “our,” “us,” and the “Company” refer to Carter Validus Mission Critical REIT, Inc., the Operating Partnership, all majority-owned subsidiaries and controlled subsidiaries.

Pursuant to a registration statement on Form S-11 under the Securities Act of 1933, as amended, or the Securities Act, the Company is offering for sale to the public on a “best efforts” basis a maximum of 150,000,000 shares of common stock at a price of $10.00 per share, and up to 25,000,000 additional shares of common stock pursuant to a distribution reinvestment plan, or DRIP, under which the Company’s stockholders may elect to have distributions reinvested in additional shares at the higher of $9.50 per share or 95% of the fair market value per share as determined by the Company’s board of directors, or the Offering, for a maximum offering of up to $1,738,000,000. The registration statement for the Offering was first declared effective by the Securities and Exchange Commission, or the SEC, on December 10, 2010. As of December 31, 2013, the Company had issued approximately 73,208,000 shares of its common stock (including shares of common stock issued pursuant to the DRIP) in the Offering, for gross proceeds of approximately $727,305,000, before selling commissions and dealer-manager fees of approximately $65,853,000 and other offering costs of approximately $13,834,000. As of December 31, 2013, the Company had approximately 101,792,000 shares of common stock remaining in the Offering.

On October 11, 2013, the Company filed with the SEC a registration statement on Form S-11 under the Securities Act with respect to a proposed follow-on offering of up to $240,000,000 of shares of common stock to be offered pursuant to a primary offering, and up to $10,000,000 of shares of common stock to be offered pursuant to the DRIP. The Company has not issued any shares in connection with the proposed follow-on offering as it has not yet been declared effective by the SEC.

Note 2—Summary of Significant Accounting Policies

The summary of significant accounting policies presented below is designed to assist in understanding the consolidated financial statements. Such consolidated financial statements and the accompanying notes thereto are the representations of management. These accounting policies conform to accounting principles generally accepted in the United States of America, or GAAP, in all material respects, and have been consistently applied in preparing the consolidated financial statements.

F-7

Principles of Consolidation and Basis of Presentation

The Company evaluates the need to consolidate investments in entities based on standards set forth in the Financial Accounting Standards Board, or the FASB, Accounting Standards Codification, or ASC, 810, Consolidation, or ASC 810. In determining whether the Company has a controlling interest in the entities and the requirement to consolidate the accounts of any such entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the partners/members as well as whether the investment entity is a variable interest entity, or VIE, for which the Company is the primary beneficiary.

A VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest but is subject to consolidation if the entity (i) has insufficient equity at risk to permit the entity to finance its activities, (ii) whose at risk equity owners, as a group, do not have the power to direct the activities that most significantly impact the entity’s economic performance, or (iii) whose at risk equity owners do not absorb the entity’s losses or receive its returns. The Company consolidates all VIEs for which it is the primary beneficiary. In determining whether the Company is the primary beneficiary of a VIE, it considers if it has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE. Consideration of various factors included, but are not limited to, the Company’s ability to direct the activities that most significantly impact the entity’s economic performance, its form of ownership interest, its representation on the entity’s governing body, the size and seniority of its investment, its ability and the rights of other investors to participate in policy making decisions and to replace the manager of and/or liquidate the entity.

As of December 31, 2013, the Company consolidated the accounts of one VIE, the 180 Peachtree Data Center, as it has the power to direct the activities that most significantly impact the entity’s economic performance, see Note 3—“Real Estate Investments.”

In addition, the Company evaluates its loan investments to determine if the borrowing entity qualifies as a VIE. As of December 31, 2013, the Company determined that four of its loan investments were with entities that qualify as VIEs, of which the Company is not the primary beneficiary because it does not have the ability to direct the activities of the VIEs that most significantly impact the entities’ economic performance. See Note 6—“Investment in Real Estate-Related Notes Receivables.”

The accompanying consolidated financial statements include the accounts of the Company, the Operating Partnership, all majority-owned subsidiaries and controlled subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Real Estate-Related Notes Receivables

As of December 31, 2013, the Company had investments in five real estate-related notes receivables, which are loans held for investment and the Company intends to hold to maturity. Accordingly, notes receivables are recorded at stated principal amounts net of any discount or premium and deferred loan origination costs or fees. The related discounts or premiums are accreted or amortized over the life of the related note receivable. The Company defers certain loan origination and commitment fees and amortizes them as an adjustment of yield over the term of the related note receivable. The related accretion of discounts and/or amortization of premiums and origination costs are recorded in interest income on real estate-related notes receivables. Interest income earned on real estate-related notes receivables for the years ended December 31, 2013, 2012 and 2011 was $5,817,000, $692,000 and $0, respectively.

The Company evaluates the collectability of both interest and principal on each note receivable, primarily through the evaluation of credit quality indicators such as underlying collateral and payment history. There were no amounts past due on notes receivable as of December 31, 2013. A note receivable is considered to be

F-8

impaired, when based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms. If a note receivable is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the note receivable’s effective interest rate or to the value of the underlying collateral if the note receivable is collateral dependent. Interest income on performing notes receivable is accrued as earned. Interest income on an impaired note receivable is recognized on a cash basis. Evaluating a note receivable for potential impairment can require management to exercise significant judgments. No impairment losses or allowances were recorded related to investments in real estate-related notes receivables for the years ended December 31, 2013, 2012 and 2011.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value.

Restricted Cash Held in Escrow

Restricted cash held in escrow includes cash held by lenders in escrow accounts for tenant and capital improvements, repairs and maintenance and other lender reserves for certain properties, in accordance with the respective lender’s loan agreement. Contributions and receipts of escrowed funds have been classified as financing activities since such funds are controlled by lenders and serve as collateral for the notes payable. Restricted cash is reported in other assets in the accompanying consolidated balance sheets. See Note 5—“Other Assets.”

Deferred Financing Costs

Deferred financing costs are loan fees, legal fees and other third-party costs associated with obtaining financing. These costs are amortized over the terms of the respective financing agreements using the effective interest method. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity unless specific rules are met that would allow for the carryover of such costs to the refinanced debt. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close. As of December 31, 2013 and 2012, the Company’s deferred financing costs were $6,800,000 and $3,438,000, respectively, net of amortization. Deferred financing costs are reported in other assets in the accompanying consolidated balance sheets.

F-9

Investment in and Valuation of Real Estate and Related Assets

Real estate costs related to the acquisition, development, construction and improvement of properties are capitalized. Repair and maintenance costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset in determining the appropriate useful life. Real estate assets, other than land, are deprecated or amortized on a straight-line basis over its useful life. The Company estimated the useful lives of its assets by class as follows:


Building and improvements		15 – 40 years
Tenant improvements		Shorter of lease term or expected useful life
Identified intangible assets		Remaining term of related lease
Furniture, fixtures, and equipment		3 – 10 years

Allocation of Purchase Price of Real Estate and Related Assets

Upon the acquisition of real properties, the Company allocates the purchase price of properties to acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, based in each case on their estimated fair values.

The fair values of the tangible assets of an acquired property (which includes land and building) are determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and building based on management’s determination of the relative fair value of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases, including leasing commissions and other related costs. In estimating carrying costs, management includes real estate taxes, insurance, and other operating expenses during the expected lease-up periods based on current market conditions.

The fair values of above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease including any bargain renewal periods, with respect to a below-market lease. The above-market and below-market lease values are capitalized as intangible lease assets or liabilities. Above-market lease values are amortized as an adjustment of rental income over the remaining terms of the respective leases. Below-market leases are amortized as an adjustment of rental income over the remaining terms of the respective leases, including any bargain renewal periods. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above-market and below-market in-place lease values relating to that lease would be recorded as an adjustment to rental income.

The fair values of in-place leases include an estimate of direct costs associated with obtaining a new tenant and opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated based on management’s consideration of current market costs to execute a similar lease. These direct lease origination costs are included in real estate assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These lease intangibles are included in real estate assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed.

F-10

Acquisition fees and expenses in connection with the acquisition of properties determined to be business combinations are expensed as incurred, including investment transactions that are no longer under consideration, and are included in acquisition related expenses in the accompanying consolidated statements of comprehensive income (loss). Acquisition fees and expenses associated with transactions determined to be an asset purchase are capitalized. The Company expensed acquisition fees and expenses for the years ended December 31, 2013, 2012 and 2011 of approximately $5,615,000, $11,474,000 and $1,084,000, respectively. As of December 31, 2013 and 2012, the Company had approximately $7,489,000 and $0, respectively, of capitalized acquisition fees and expenses.

Impairment of Long Lived Assets

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets may not be recoverable, the Company assesses the recoverability of the assets by estimating whether the Company will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition. If based on this analysis the Company does not believe that it will be able to recover the carrying value of the asset, the Company will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the asset. No impairment losses have been recorded to date.

When developing estimates of expected future cash flows, the Company makes certain assumptions regarding future market rental income amounts subsequent to the expiration of current lease arrangements, property operating expenses, terminal capitalization and discount rates, the expected number of months it takes to re-lease the property, required tenant improvements and the number of years the property will be held for investment. The use of alternative assumptions in the future cash flow analysis could result in a different determination of the property’s future cash flows and a different conclusion regarding the existence of an impairment, the extend of such loss, if any, as well as the carrying value of the real estate and related assets.

Real Estate Escrow Deposits

Real estate escrow deposits include funds held by escrow agents and others to be applied towards the purchase of real estate, which are included in other assets in the accompanying consolidated balance sheets.

Fair Value

ASC 820, Fair Value Measurements and Disclosures, or ASC 820, defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. ASC 820 emphasizes that fair value is intended to be a market-based measurement, as opposed to a transaction-specific measurement.

Fair value is defined by ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate the fair value. Assets and liabilities are measured using inputs from three levels of the fair value hierarchy, as follows:

Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other

F-11

than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs).

Level 3—Unobservable inputs, only used to the extent that observable inputs are not available, reflect the Company’s assumptions about the pricing of an asset or liability.

The following describes the methods the Company uses to estimate the fair value of the Company’s financial assets and liabilities:

Cash and cash equivalents, restricted cash, rents and tenant receivables, property escrow deposits, prepaid expenses, mortgage loan deposits, accounts payable and accrued liabilities—The Company considers the carrying values of these financial instruments, assets and liabilities to approximate fair value because of the short period of time between origination of the instruments and their expected realization.

Notes payable—Fixed Rate—The fair value is estimated by discounting the expected cash flows on notes payable at current rates at which management believes similar loans would be made considering the terms and conditions of the loan and prevailing market interest rates.

Notes receivables—The fair value is estimated by discounting the expected cash flows on the notes at interest rates at which management believes similar loans would be made.

Derivative instruments—The Company’s derivative instruments consist of interest rate swaps. These swaps are carried at fair value to comply with the provisions of ASC 820. The fair value of these instruments is determined using interest rate market pricing models. The Company incorporated credit valuation adjustments to appropriately reflect the Company’s nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

Revenue Recognition, Tenant Receivables and Allowance for Uncollectible Accounts

The Company recognizes revenue in accordance with ASC Topic 605, Revenue Recognition, or ASC 605. ASC 605 requires that all four of the following basic criteria be met before revenue is realized or realizable and earned: (1) there is persuasive evidence that an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed and determinable; and (4) collectability is reasonably assured.

In accordance with ASC Topic 840, Leases, minimum rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Differences between rental income recognized and amount contractually due under the lease agreements are credited or charged to deferred rent receivable or deferred rent liability, as applicable. Tenant reimbursement revenue, which is comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred. Tenant reimbursements are recognized and presented in accordance with ASC Subtopic 605-45, Revenue Recognition—Principal Agent Consideration, or ASC 605-45. ASC 605-45 requires that these reimbursements be recorded on a gross basis. The Company is the primary obligor with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and has credit risk.

Tenant receivables and unbilled deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and unbilled deferred rent. An allowance will be maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements. The Company also maintains an allowance for deferred rent receivables arising from the straight-lining of rents. The Company’s determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the tenant’s financial condition, security deposits, letters of credit, lease guarantees and current economic conditions and other relevant factors. As of December 31, 2013, the Company did not have an allowance for uncollectible tenant receivables.

F-12

Income Taxes

The Company is taxed as a REIT under Sections 856 through 860 of the Code. As a REIT, the Company is required to distribute at least 90% of its taxable income (excluding capital gains) to its stockholders. In addition, the Company generally is not subject to federal corporate income taxes to the extent it distributes its taxable income to its stockholders. Even as a REIT, the Company may be subject to certain state and local taxes on its income and property and federal income and excise taxes on its undistributed income.

Concentration of Credit Risk and Significant Leases

As of December 31, 2013, the Company had cash on deposit, including restricted cash, in ten financial institutions, seven of which had deposits in excess of current federally insured levels totaling $8.4 million; however, the Company had not experienced any losses in such accounts. The Company limits its cash investments to financial institutions with high credit standing; therefore, the Company believes it is not exposed to any significant credit risk on its cash deposits. To date, the Company had experienced no loss or lack of access to cash in its accounts. Concentration of credit risk with respect to accounts receivable from tenants is limited.

Based on leases in effect as of December 31, 2013, the Company owned real estate investments in 24 MSAs (including one property owned through a consolidated partnership), three of which each accounted for 10% or more of rental revenue. Properties located in the Dallas-Ft.Worth-Arlington, Texas area accounted for an aggregate of 24.3% of rental revenue for the year ended December 31, 2013, properties located in the Atlanta-Sandy Springs-Marietta, Georgia area accounted for an aggregate of 18.3% of rental revenue for the year ended December 31, 2013 and properties located in the Philadelphia-Camden-Wilmington, Pennsylvania area accounted for an aggregate of 11.4% of rental revenue for the year ended December 31, 2013. Based on leases in effect as of December 31, 2012, the Company owned properties in two MSAs that each accounted for 10% or more of rental revenue. Properties located in the Dallas-Ft.Worth-Arlington, Texas area accounted for an aggregate of 29.7% of rental revenue for the year ended December 31, 2012 and properties located in the Atlanta-Sandy Springs-Marietta, Georgia area accounted for an aggregate of 47.4% of rental revenue for the year ended December 31, 2012. Based on leases in effect as of December 31, 2011, the Company owned one property in the Dallas-Ft. Worth-Arlington, Texas area, which accounted for 100% of rental revenue for the year ended December 31, 2011.

Based on leases in effect as of December 31, 2013, the Company’s two reportable business segments, data centers and medical facilities, accounted for 57.9% and 42.1%, respectively, of rental revenue for the year ended December 31, 2013. Rental revenue is based on the total revenue recognized and reported in the Company’s consolidated statements of comprehensive income (loss). Based on leases in effect as of December 31, 2012, the Company’s two reportable business segments, data centers and medical facilities, accounted for 78.8% and 21.2%, respectively, of rental revenue for the year ended December 31, 2012. Based on leases in effect as of December 31, 2011, the Company owned one property that was classified as a data center, which accounted for 100% of rental revenue for the year ended December 31, 2011.

As of December 31, 2013, leases with two tenants each accounted for 10% or more of rental revenue, which in total accounted for 22.0% of rental revenue. The leases with Level 3 Communications, LLC accounted for 10.6% of rental revenue for the year ended December 31, 2013 and the lease with Vanguard Group, Inc. accounted for 11.4% of rental revenue for the year ended December 31, 2013. As of December 31, 2012, leases with two tenants each accounted for 10% or more of rental revenue, which in total accounted for 42.9% of rental revenue. The leases with Level 3 Communications, LLC accounted for 26.8% of rental revenue for the year ended December 31, 2012 and the lease with Catholic Health Initiatives accounted for 16.1% of rental revenue for the year ended December 31, 2012. As of December 31, 2011, the Company had one tenant, Catholic Health Initiatives, which accounted for 100% of the Company’s rental revenue for the year ended December 31, 2011.

In addition, the Company had one tenant, AT&T Services, Inc. (occupying three properties), that, based on all leases in-place as of December 31, 2013, and assuming no additional leases, would account for 28.7% of 2014 rental revenue (calculated based on 2014 rental revenue as a percentage of total 2014 contractual revenue). The Company believes that the loss of this tenant would have a material adverse effect on its business and results of operations.

F-13

Stock-Based Compensation

The Company accounts for stock-based compensation based upon the estimated fair value of the share awards. Accounting for stock-based compensation requires the fair value of the awards to be amortized as compensation expense over the period for which the services relate and requires any dividend equivalents earned to be treated as dividends for financial reporting purposes. See Note 10—“Stock-Based Compensation” for a further discussion of stock-based compensation awards.

Stockholders’ Equity

As of December 31, 2013, the Company was authorized to issue 350,000,000 shares of stock, of which 300,000,000 shares are designated as common stock at $0.01 par value per share and 50,000,000 shares are designated as preferred stock at $0.01 par value per share. As of December 31, 2013, the Company had approximately 73,238,000 shares of common stock issued and 73,138,000 shares of common stock outstanding, and no shares of preferred stock issued and outstanding. As of December 31, 2012, the Company had approximately 20,262,000 shares of common stock issued and 20,241,000 shares of common stock outstanding, and no shares of preferred stock issued and outstanding. The Company’s board of directors may authorize additional shares of capital stock and amend their terms without obtaining stockholder approval.

Share Repurchase Program

The Company has approved a share repurchase program that allows for repurchases of shares of the Company’s common stock when certain criteria are met. The share repurchase program provides that all redemptions during any calendar year, including those upon death or a qualifying disability of a stockholder, are limited to those that can be funded with proceeds raised from the DRIP.

Repurchases of shares of the Company’s common stock are at the sole discretion of the Company’s board of directors. In addition, the Company’s board of directors, at its sole discretion, may amend, suspend, reduce, terminate or otherwise change the share repurchase program upon 30 days’ prior notice to the Company’s stockholders for any reason it deems appropriate. During the year ended December 31, 2013, the Company received valid redemption requests relating to approximately 80,000 shares of common stock, all of which were redeemed in full for an aggregate purchase price of approximately $783,000 (an average of $9.79 per share). During the year ended December 31, 2012, the Company repurchased approximately 20,000 shares of common stock, for an aggregate amount of $196,000 (an average of $9.80 per share), under its share repurchase program.

Distributions Payable and Distribution Policy

In order to maintain its status as a REIT, the Company is required to make distributions each taxable year equal to at least 90% of its taxable income, excluding capital gains. To the extent funds are available, the Company intends to continue to pay regular distributions to stockholders. Distributions are paid to stockholders of record as of the applicable record dates. As of December 31, 2013, the Company paid aggregate distributions, since inception, of approximately $32,836,000 ($17,604,000 in cash and $15,232,000 of which were reinvested in shares of common stock pursuant to the DRIP), calculated at the current rate of 7.0%. The Company’s distributions declared per common share were $0.70, $0.70 and $0.63 for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, the Company had distributions payable of approximately $4,150,000. The distributions were paid on January 2, 2014, $2,122,000 of which were paid in cash and $2,028,000 of which were reinvested in shares of common stock pursuant to the DRIP.

Earnings Per Share

Basic earnings (loss) per share attributable for all periods presented are computed by dividing net income (loss) attributable to the Company by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share are computed based on the weighted average number of shares outstanding and all potentially dilutive securities. Shares of non-vested restricted common stock give rise

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to potentially dilutive shares of common stock as dividends are paid on non-vested restricted shares. For the year ended December 31, 2013, diluted earnings per share reflect the effect of approximately 17,000 non-vested shares of restricted common stock that were outstanding as of such period. For the years ended December 31, 2012 and 2011, diluted earnings per share reflect the effect of 20,250 shares and 15,000 shares, respectively, of non-vested shares of restricted common stock outstanding, but such shares were excluded from the computation of diluted earnings per share because such shares were antidilutive during the period.

Interest

Interest is charged to expense as it accrues. No interest costs were capitalized during any of the years presented.

Reportable Segments

ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. As disclosed previously, as of December 31, 2013, the Company operated through two reportable business segments—data centers and medical facilities. With the continued expansion of the Company’s portfolio, segregation of the Company’s operations into two reporting segments is useful in assessing the performance of the Company’s business in the same way that management reviews performance and makes operating decisions. See Note 15—“Segment Reporting” for further discussion.

Derivative Instruments and Hedging Activities

To comply with ASC Topic 815, Derivatives and Hedging, or ASC 815, the Company records all derivative instruments as assets and liabilities in the statement of financial position at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the consolidated statements of comprehensive income (loss) during the current period.

The Company is exposed to variability in expected future cash flows that are attributable to interest rate changes in the normal course of business. The Company’s primary strategy in entering into derivative contracts is to add stability to future cash flows by managing its exposure to interest rate movements. The Company utilizes derivative instruments, including interest rate swaps, to effectively convert some its variable rate debt to fixed rate debt. The Company does not enter into derivative instruments for speculative purposes.

In accordance with ASC 815, the Company designates interest rate swap contracts as cash flow hedges of floating-rate borrowings. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) in the consolidated statements of comprehensive income (loss) and reclassified into earnings in the same line item associated with forecasted transaction and the same period during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument is recognized in the consolidated statements of comprehensive income (loss) during the current period.

In accordance with the fair value measurement guidance ASU 2011-04, Fair Value Measurement, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Recently Issued Accounting Pronouncements

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, or ASU 2013-02. The objective of ASU 2013-02 is to improve the reporting of

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reclassifications out of accumulated other comprehensive income (loss), which requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income (loss) on the respective line item in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income (loss) in financial statements. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 became effective on January 1, 2013 and did not have a material effect on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Bench Interest Rate for Hedge Accounting Purposes, or ASU 2013-10. The objective of ASU 2013-10 is to provide for the inclusion of the Federal Funds Effective Swap Rate as a U.S. benchmark interest rate for hedge accounting purposes, in addition to the currently considered benchmark interest rates: the interest rates on direct Treasury obligations of the U.S. government and the London Interbank Offered Rate (LIBOR) swap rate. In addition, ASU 2013-10 removes the restriction on using different benchmark rates for similar hedges. The adoption of ASU 2013-10 is effective prospectively for qualifying new or redesigned hedging relationships entered into on or after July 17, 2013. The adoption of ASU 2013-10 did not have a material effect on the Company’s consolidated financial statements.

Reclassifications

In order to conform to the 2013 presentation, certain of the 2012 and 2011 balances have been reclassified in the Company’s consolidated financial statements with no effect on the Company’s financial position or results of operations. Interest income on real estate-related notes receivables, was previously reported as a component of other income (expense), and is now disclosed separately in the revenue line item in the Company’s consolidated statements of comprehensive income (loss), and asset management fees, which were previously reported as a component of general and administrative expenses, are disclosed separately in the Company’s consolidated statements of comprehensive income (loss).

Note 3—Real Estate Investments

The Company’s real estate investments in consolidated properties consisted of the following as of December 31, 2013 and 2012 (amounts in thousands):


	December 31,
	2013			2012
Land	$	92,052		$	34,577
Buildings and improvements		791,574			357,559
Acquired intangible assets		121,438			60,019

		1,005,064			452,155
Less: accumulated depreciation and amortization		(27,640	)		(8,732	)

	$	977,424		$	443,423

Depreciation and amortization expense for the years ended December 31, 2013, 2012 and 2011 was $18,749,000, $8,080,000 and $517,000, respectively. In addition to the property acquisitions discussed below, for the years ended December 31, 2013, 2012 and 2011, the Company had capital expenditures of $449,000, $1,066,000 and $0, respectively, primarily related to the Company’s data center facilities.

The Company reimburses the Advisor, or its affiliates, for acquisition expenses related to selecting, evaluating, acquiring and investing in properties. The reimbursement of acquisition expenses, acquisition fees and real estate commissions and other fees paid to unaffiliated parties will not exceed, in the aggregate, 6.0% of

F-16

the contract purchase price or total development costs of a certain acquisition, unless fees in excess of such limits are approved by a majority of the Company’s disinterested directors, including a majority of its independent directors. For the year ended December 31, 2013, acquisition fees and acquisition related costs totaled $13,104,000 and did not exceed 6.0% of the purchase price of the Company’s acquisitions during such period. The Company incurred $10,822,000 to its Advisor in acquisition fees in connection with these acquisitions.

2013 Real Estate Investments

During the year ended December 31, 2013, the Company completed 17 real estate acquisitions, of which 12 of the properties were determined to be business combinations in the amount of $187,602,000 and five of the properties were determined to be asset acquisitions in the amount of $360,985,000, for an aggregate purchase price of $548,587,000. In connection with the acquisition of three properties, the Company obtained financing of $47,625,000 and the remaining balance of the purchase price was paid with cash proceeds from the Offering and the KeyBank Credit Facility (as defined below).

On November 15, 2013, the Company acquired the remaining noncontrolling interests in the Philadelphia Data Center for a total cost of $18,750,000. As a result, the Philadelphia Data Center became a wholly-owned property of the Company.

Consolidated Partnership

180 Peachtree Data Center

Consolidated Variable Interest Entity

On January 3, 2012, an indirect partially owned subsidiary of the Operating Partnership purchased the 180 Peachtree Data Center through a consolidated partnership with three unaffiliated institutional investors. The Operating Partnership owns approximately 20.53% and the institutional investors own an aggregate of 79.47% of the consolidated partnership’s interests. Upon acquisition, the Company recorded the fair value of noncontrolling interest at $34,406,000.

The Company concluded that the entity that owns the 180 Peachtree Data Center is a VIE as the entity had insufficient equity to finance its activities without additional subordinated financial support. As the Company has the power to direct the activities that most significantly impact the entity, it is the primary beneficiary of and therefore has consolidated the entity, which owns the 180 Peachtree Data Center. Any significant amounts of assets and liabilities related to the consolidated VIE are identified parenthetically on the accompanying consolidated balance sheets. For the year ended December 31, 2013, total revenue and net income related to the 180 Peachtree Data Center were $16,136,000 and $2,945,000, respectively. For the year ended December 31, 2012, total revenue and net income related to the 180 Peachtree Data Center were $15,465,000 and $2,017,000, respectively. For the year ended December 31, 2013, cash flows related to the 180 Peachtree Data Center consisted of $4,440,000 in cash provided by operating activities, $350,000 in cash used in investing activities and $4,142,000 in cash used in financing activities. For the year ended December 31, 2012, cash flows related to the 180 Peachtree Data Center consisted of $3,752,000 in cash provided by operating activities, $52,307,000 in cash used in investing activities and $49,018,000 in cash provided by financing activities. The creditors of the consolidated VIE do not have recourse to the Company’s general credit.

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Note 4—Acquired Intangible Assets, Net

Acquired intangible assets, net, which are included in real estate in the accompanying consolidated balance sheets, consisted of the following as of December 31, 2013 and 2012 (amounts in thousands):


	December 31,
	2013		2012
In-place leases, net of accumulated amortization of $7,954 and $2,708 as of December 31, 2013 and 2012, respectively (with a weighted average remaining life of 14.6 years and 15.8 years as of December 31, 2013 and 2012, respectively)	$	109,342	$	54,238
Above-market leases, net of accumulated amortization of $294 and $135 as of December 31, 2013 and 2012, respectively (with a weighted average remaining life of 8.6 years and 9.1 years as of December 31, 2013 and 2012, respectively)		846		1,006
Ground lease interest, net of accumulated amortization of $78 and $37 as of December 31, 2013 and 2012, respectively (with a weighted average remaining life of 62.8 years and 43.1 years as of December 31, 2013 and 2012, respectively)		2,700		1,672
Lease commissions, net of accumulated amortization of $21 and $7 as of December 31, 2013 and 2012, respectively (with a weighted average remaining life of 13.4 years and 14.4 years as of December 31, 2013 and 2012, respectively)		203		216

	$	113,091	$	57,132

Amortization expense for the in-place leases, lease commissions and ground leases for the years ended December 31, 2013, 2012 and 2011 was $5,301,000, $2,661,000 and $90,000, respectively. Amortization of the above-market leases for the years ended December 31, 2013, 2012 and 2011 was $159,000, $135,000 and $0, respectively.

Estimated amortization expense on the acquired intangible assets as of December 31, 2013 and for each of the next five years ending December 31 and thereafter, are as follows (amounts in thousands):


Year	Amount
2014	$	9,348
2015		9,348
2016		9,028
2017		8,707
2018		8,656
Thereafter		68,004

	$	113,091

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Note 5—Other Assets

Other assets consisted of the following as of December 31, 2013 and 2012 (amounts in thousands):


	December 31,
	2013		2012
Deferred financing costs, net of accumulated amortization of $1,750 and $432 as of December 31, 2013 and 2012, respectively	$	6,800	$	3,438
Investments in unconsolidated partnerships		116		135
Accounts receivable		384		528
Accounts receivable accrued		641		752
Straight-line rent receivable		7,902		2,504
Restricted cash held in escrow		6,388		3,604
Real estate escrow deposits		5		578
Derivative assets		644		—
Prepaid and other assets		2,769		747

	$	25,649	$	12,286

Amortization of deferred financing costs for the years ended December 31, 2013, 2012 and 2011 was $1,318,000, $490,000 and $15,000, respectively, which was recorded as interest expense in the accompanying consolidated statements of comprehensive income (loss).

Estimated amortization of deferred financing costs as of December 31, 2013 and for each of the next five years ending December 31 and thereafter, are as follows (amounts in thousands):


Year	Amount
2014	$	2,031
2015		2,026
2016		1,662
2017		734
2018		216
Thereafter		131

	$	6,800

Note 6—Investment in Real Estate-Related Notes Receivables

As of December 31, 2013 and 2012, the aggregate balance on the Company’s investment in real estate-related notes receivables was $54,080,000 and $23,711,000, respectively. As of December 31, 2013, the Company had fixed rate notes receivables with interest rates ranging from 8.00% to 17.00% per annum and a weighted average interest rate of 12.67% per annum.

Real estate-related notes receivables consisted of the following as of December 31, 2013 and 2012 (amounts in thousands):


	Interest Rate			Maturity Date			Outstanding Balance as of December 31,
Real Estate-Related Notes Receivables	Interest Rate			Maturity Date			2013		2012
Walnut Hill Property Company Loan(1),(2),(6)		10.00	%		02/28/18		$	20,327	$	8,305
Bay Area Preferred Equity Loan(1),(2),(6)		17.00	%		11/30/18			23,247		14,892
MM Peachtree Holdings(1),(3)		12.00	%		12/31/21			514		514
Medistar Loan(4),(6)		8.00	%			(5)		9,500		—
Landmark Loan(1),(4),(6)		9.00	%		12/17/15			492		—

							$	54,080	$	23,711

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(1)	Unconsolidated VIE

(2)	Loans are collateralized by membership interests in the members of the parent company.

(3)	Unsecured loan

(4)	The loans are collateralized by a first deed of trust in real property.

(5)

The Medistar Loan, previously known as the Walnut Hill Bridge Loan, matures upon the earlier to occur of: (i) the sale or refinancing of the property under construction for which proceeds from the loan were used; (ii) May 7, 2014 and (iii) the sale of the Walnut Hill Physicians Hospital. See Note 22—“Subsequent Events” for modifications to the Medistar Loan.

(6)	As of December 31, 2013, an affiliate of the Company had entered into purchase agreements to purchase the respective property under construction when the construction is completed.

The Company evaluates the collectability of both interest and principal on each note receivable to determine whether it is collectible, primarily through the evaluation of the credit quality indicators, such as underlying collateral and payment history. The Company does not intend to sell its investments in real estate-related notes receivables and it is not likely that the Company will be required to sell its investments in real estate-related notes receivables before recovery of their amortized costs basis, which may be at maturity. No impairment losses were recorded related to investments in real estate-related notes receivables for the years ended December 31, 2013 and 2012. In addition, no allowances for uncollectability were recorded related to investments in real estate-related notes receivables as of December 31, 2013 and 2012. Interest income earned on real estate-related notes receivables for the years ended December 31, 2013, 2012 and 2011 was $5,817,000, $692,000 and $0, respectively.

Unconsolidated Variable Interest Entities

As of December 31, 2013 and 2012, the Company had an aggregate of $44,580,000 and $8,819,000, respectively, of receivables from unconsolidated VIEs, which consisted of real estate-related notes receivables. Outstanding balances of assets, liabilities and maximum exposure to loss related to the Company’s variable interest in unconsolidated VIEs consisted of the following as of December 31, 2013 and 2012 (amounts in thousands):


	December 31, 2013							December 31, 2012
Variable Interest in Unconsolidated VIEs	Assets			Liabilities		Maximum Exposure to Loss		Assets		Liabilities		Maximum Exposure to Loss
Walnut Hill Property Company Loan	$	20,327	(1)	$	—	$	20,327	$	8,305	$	—	$	8,305
Bay Area Preferred Equity Loan		23,247	(2)		—		23,247		—		—		—
MM Peachtree Holdings		514			—		514		514		—		514
Landmark Loan		492	(3)		—		492		—		—		—

	$	44,580		$	—	$	44,580	$	8,819	$	—	$	8,819

(1)	As of December 31, 2013, the Company’s variable interest in the Walnut Hill Property Company Loan consisted of the loan’s principal balance of $20,000,000 and origination costs of $327,000.

(2)	As of December 31, 2013, the Company’s variable interest in the Bay Area Preferred Equity Loan consisted of the loan’s principal balance of $22,500,000 and origination costs of $747,000.

(3)	As of December 31, 2013, the Company’s variable interest in the Landmark Loan consisted of the loan’s principal balance of $616,000 and commitment fees of $124,000.

The Company’s maximum risk of loss associated with these variable interest lending activities is limited to these amounts. The Company may be subject to additional losses to the extent of any receivables relating to future funding.

Note 7—Future Minimum Rent

The Company’s real estate assets are leased to tenants under operating leases with varying terms. The leases frequently have provisions to extend the lease agreement. The Company retains substantially all of the risks and

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benefits of ownership of the real estate assets leased to tenants. As of December 31, 2013, the weighted average remaining lease term was 11.4 years.

The future minimum rental income from the Company’s investment in real estate assets under non-cancelable operating leases as of December 31, 2013 and for each of the next five years ending December 31 and thereafter, are as follows (amounts in thousands):


Year	Amount
2014	$	73,289
2015		74,648
2016		75,015
2017		75,920
2018		77,352
Thereafter		591,754

	$	967,978

Note 8—Notes Payable

The Company had $201,177,000 and $156,847,000 outstanding in notes payable collateralized by real estate assets as of December 31, 2013 and 2012, respectively. As of December 31, 2013, the Company had eight fixed rate notes payable in the aggregate amount of $137,049,000 and three variable rate notes payable in the aggregate amount of $64,128,000 that were fixed through interest rate swap agreements, with interest rates ranging from 3.86% to 5.93%. As of December 31, 2013, the notes payable weighted average interest rate was 4.91% and mature on various dates from August 2016 through April 2022.

The principal payments due on the notes payable as of December 31, 2013 and for each of the next five years ending December 31 and thereafter, are as follows (amounts in thousands):


Year	Principal Payments		Balloon Payments		Amount
2014	$	3,590	$	—	$	3,590
2015		3,880		—		3,880
2016		3,813		13,488		17,301
2017		3,189		74,336		77,525
2018		1,215		45,403		46,618
Thereafter		3,641		48,622		52,263

	$	19,328	$	181,849	$	201,177

Note 9—Credit Facility

As of December 31, 2013, the aggregate maximum principal amount committed under the secured credit facility with KeyBank National Association, or the KeyBank Credit Facility, was $225,000,000, consisting of a $170,000,000 revolving line of credit, with a maturity date of August 9, 2016, subject to the Operating Partnership’s right to a 12-month extension, and $55,000,000 in term loans, with a maturity date of August 9, 2017, subject to the Operating Partnership’s right to a 12-month extension. The proceeds of loans made under the KeyBank Credit Facility may be used to finance the acquisition of real estate investments, capital expenditures with respect to real estate and for general corporate working capital purposes. The KeyBank Credit Facility can be increased to $350,000,000 under certain circumstances.

F-21

the lender’s commitments under the KeyBank Credit Facility of 0.30% per annum if the average daily amount outstanding balance under the KeyBank Credit Facility is less than 50% of the lenders’ commitments, and 0.20% per annum if the average daily amount outstanding under the KeyBank Credit Facility is greater than 50% of the lender’s commitments. The unused fee is payable quarterly in arrears.

In connection with the KeyBank Credit Facility, the Operating Partnership entered into interest swap agreements with KeyBank National Association to effectively fix LIBOR on the term loans at a weighted average rate of 0.91%, resulting in an interest rate under the term loans of the KeyBank Credit Facility ranging from 3.16% to 3.91% per annum. The revolving line of credit and the term loans can be prepaid prior to maturity without penalty; provided, however, that any portion of the term loans that is prepaid may not be reborrowed, and the Operating Partnership may be subject to a breakage fee under the swap agreements, if applicable.

The KeyBank Credit Facility agreement contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including limitations on the incurrence of debt and limitations on distributions by the properties that serve as collateral for the KeyBank Credit Facility in the event of a default. The KeyBank Credit Facility agreement also imposes the following financial covenants: (i) minimum liquidity thresholds; (ii) a minimum ratio of operating cash flow to fixed charges; (iii) a maximum ratio of liabilities to asset value; (iv) a maximum daily distribution covenant; (v) a minimum quarterly equity raise; (vi) a minimum number of properties in the collateral pool; (vii) a minimum debt yield; and (viii) a minimum tangible net worth. In addition, the KeyBank Credit Facility agreement includes events of default that are customary for credit facilities and transactions of this type. The Company believes it was in compliance with all financial covenant requirements at December 31, 2013.

The actual amount of credit available under the KeyBank Credit Facility is a function of certain loan-to-cost, loan-to-value, debt yield and debt service coverage ratios. The credit available to the Operating Partnership under the KeyBank Credit Facility will be a maximum principal amount of the value of the assets that are included in the collateral pool. As of December 31, 2013, the Company had drawn down $152,000,000 under the KeyBank Credit Facility and had an aggregate borrowing base availability of $31,369,000.

Note 10—Stock-Based Compensation

On March 18, 2011, the Company adopted the Carter Validus Mission Critical REIT, Inc. 2010 Restricted Share Plan, or the 2010 Plan, pursuant to which the Company has the authority to grant restricted and deferred stock awards to persons eligible under the 2010 Plan. The Company authorized and reserved 300,000 shares of its common stock for issuance under the 2010 Plan, subject to certain adjustments. Subject to certain limited exceptions, restricted stock may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of and is subject to forfeiture within the vesting period. Restricted stock awards generally vest ratably over four years. The Company uses the straight-line method to recognize expenses for service awards with graded vesting. Restricted stock awards are entitled to receive dividends during the vesting period. In addition to the ratable amortization of fair value over the vesting period, dividends paid on unvested shares of restricted stock which are not expected to vest are charged to compensation expense in the period paid.

On July 2, 2013, the Company awarded an aggregate of 9,000 shares of restricted stock to its independent board members in connection with their re-election to the board of directors of the Company. The fair value of each share of restricted common stock that has been granted under the 2010 Plan is estimated at the date of grant at $10.00 per share, the per share price of shares sold in the Offering. The restricted stock awards vest over a period of four years. The awards are amortized using the straight-line method over four years.

As of December 31, 2013 and 2012, there was $182,000 and $163,000, respectively, of total unrecognized compensation expense related to nonvested shares of our restricted common stock. This expense is expected to be recognized over a remaining weighted average period of 2.20 years. This expected expense does not include the impact of any future stock-based compensation awards.

F-22

As of December 31, 2013 and 2012, the fair value of the nonvested shares of restricted common stock was $232,500 and $202,500, respectively. A summary of the status of the nonvested shares of restricted common stock as of December 31, 2012 and the changes for the year ended December 31, 2013 is presented below:


Restricted Stock	Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2012		20,250		$	10.00
Vested		(6,000	)	$	10.00
Granted		9,000		$	10.00

Nonvested at December 31, 2013		23,250		$	10.00

Stock-based compensation expense for the years ended December 31, 2013, 2012 and 2011 was $71,000, $51,000 and $26,000, respectively, which is reported in general and administrative costs in the accompanying consolidated statements of comprehensive income (loss).

Note 11—Intangible Lease Liabilities, Net

Intangible lease liabilities, net consisted of the following as of December 31, 2013 and 2012 (amounts in thousands):


	December 31,
	2013		2012
Below-market leases, net of accumulated amortization of $6,501 and $2,583 as of December 31, 2013 and 2012, respectively (with a weighted average remaining life of 18.5 years and 18.2 years as of December 31, 2013 and 2012, respectively)	$	53,962	$	54,022

Amortization of below-market leases for the years ended December 31, 2013, 2012 and 2011 was $3,918,000, $2,542,000 and $40,000, respectively. Amortization of below-market leases is recorded to rental income in the accompanying consolidated statements of comprehensive income (loss).

Estimated amortization of below-market leases as of December 31, 2013 and for each of the next five years ending December 31 and thereafter, are as follows (amounts in thousands):


Year	Amount
2014	$	4,004
2015		4,004
2016		3,820
2017		3,581
2018		3,581
Thereafter		34,972

	$	53,962

Note 12—Commitments and Contingencies

Litigation

In the ordinary course of business, the Company may become subject to litigation or claims. As of December 31, 2013, there were, and currently there are, no material pending legal proceedings to which the Company is a party.

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Note 13—Related-Party Transactions and Arrangements

Certain affiliates of the Company receive fees and compensation in connection with the Offering and the acquisition, management and sale of the assets of the Company. The affiliated Dealer-Manager of the Company receives a selling commission of up to 7.0% of gross offering proceeds. In addition, the Dealer-Manager receives up to 2.75% of gross offering proceeds as a dealer-manager fee. The Dealer-Manager, in its sole discretion, may reallow all or a portion of its dealer-manager fee to such participating broker-dealers as a marketing and due diligence expense reimbursement. The Company paid the Dealer-Manager approximately $47,499,000, $15,538,000 and $2,816,000 for the years ended December 31, 2013, 2012 and 2011, respectively, for selling commissions and dealer-manager fees.

Organization and offering expenses may be paid by the Advisor, or its affiliates, on behalf of the Company. The Advisor is reimbursed for actual expenses incurred up to 15.0% of the gross offering proceeds (including selling commissions and the dealer-manager fee from the sale of shares of the Company’s common stock in the Offering, other than shares of common stock sold pursuant to the DRIP). For the years ended December 31, 2013, 2012 and 2011, the Company reimbursed $9,654,000, $2,999,000 and $419,000, respectively, in offering expenses to the Advisor, or its affiliates. Other organization expenses are expensed as incurred and offering costs are reported in the accompanying consolidated statements of stockholders’ equity.

The Company pays the Advisor, or its affiliates, an acquisition and advisory fee in the amount of 2.0% of the contract purchase price of each asset or loan the Company acquires or originates. In addition, the Company reimburses the Advisor for all acquisition expenses it incurs on the Company’s behalf, but only to the extent the total amount of all acquisition fees and acquisition expenses is limited to 6.0% of the contract purchase price. For the years ended December 31, 2013, 2012 and 2011, the Company incurred $10,822,000, $5,835,000 and $323,000, respectively, in acquisition fees to the Advisor, or its affiliates. During the years ended December 31, 2013, 2012 and 2011, the Company paid $1,016,000, $0 and $0, respectively, in advisory fees to the Advisor, or its affiliates, related to investments in notes receivables.

The Company pays the Advisor an annual asset management fee of 1.0% of the aggregate asset value plus costs and expenses incurred by the Advisor in providing asset management services. The fee is payable monthly in an amount equal to 0.08333% of the aggregate asset value as of the last day of the immediately preceding month. In order to improve operating cash flows and the ability to pay distributions from operating cash flows, the Advisor agreed to waive certain fees, including asset management fees incurred for the period. For the years ended December 31, 2013 and 2012, the Advisor recognized $2,343,000 and $133,000, respectively, in asset management fees, and waived irrevocably, without recourse, $2,339,000 and $1,112,000, respectively, of such fees. For the year ended December 31, 2011, the Company incurred $146,000 in asset management fees, all of which were deferred by the Advisor because the Company’s modified funds from operations did not exceed its distributions. Because the Advisor waived certain fees, cash flow from operations that would have been paid to the Advisor was available to pay distributions to stockholders. The Advisor may discontinue waiving asset management fees in the future at its discretion.

The Company reimburses the Advisor for all expenses it paid or incurred in connection with the services provided to the Company, subject to certain limitations. The Company will not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives an acquisition and advisory fee or a disposition fee. For the years ended December 31, 2013, 2012 and 2011, the Advisor incurred $1,005,000, $662,000 and $203,000, respectively, in indirect operating expenses on the Company’s behalf. For years ended December 31, 2013, 2012 and 2011, the Advisor waived $0, $382,000 and $203,000, respectively, of its indirect operating expenses it incurred on behalf of the Company, without recourse. The indirect operating expenses waived by the Advisor consisted of administrative service expense, including payroll-related expenses.

The Company has no direct employees. The employees of the Advisor and other affiliates provide services to the Company related to acquisition, property management, asset management, accounting, investor relations, and all other administrative services. If the Advisor, or its affiliates, provides a substantial amount of services, as determined by a majority of the Company’s independent directors, in connection with the sale of one or more

F-24

properties, the Company will pay the Advisor up to one-half of the brokerage commission paid, but in no event to exceed an amount equal to 2.0% of the contract sales price of each property sold. In no event will the combined real estate commission paid to the Advisor, its affiliates and unaffiliated third parties exceed 6.0% of the contract sales price. In addition, after investors have received a return on their net capital contributions and an 8.0% cumulative non-compounded annual return, then the Advisor is entitled to receive 15.0% of the remaining net sale proceeds. As of December 31, 2013, the Company did not incur a disposition fee or a subordinated sale fee to the Advisor or its affiliates.

Upon listing of the Company’s common stock on a national securities exchange, a listing fee equal to 15.0% of the amount by which the market value of the Company’s outstanding stock plus all distributions paid by the Company prior to listing exceeds the sum of the total amount of capital raised from investors and the amount of cash flow necessary to generate an 8.0% cumulative, non-compounded annual return to investors will be paid to the Advisor. As of December 31, 2013, the Company did not incur a listing fee.

The Company pays Carter Validus Real Estate Management Services, LLC, or the Property Manager, leasing and management fees for the Company’s properties. Such fees equal 3.0% of gross revenues from single-tenant properties and 4.0% of gross revenues from multi-tenant properties. The Company will reimburse the Property Manager and its affiliates for property-level expenses that any of them pay or incur on the Company’s behalf, including salaries, bonuses and benefits of persons employed by the Property Manager and its affiliates, except for the salaries, bonuses and benefits of persons who also serve as one of the Company’s executive officers. The Property Manager and its affiliates may subcontract the performance of their duties to third parties and pay all or a portion of the property management fee to the third parties with whom they contract for these services. If the Company contracts directly with third parties for such services at customary market fees, the Company will pay the Property Manager an oversight fee equal to 1.0% of the gross revenues of the property managed. In no event will the Company pay the Property Manager, the Advisor or any affiliate both a property management fee and an oversight fee with respect to any particular property. The Company may pay the Property Manager a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. For the years ended December 31, 2013, 2012 and 2011, the Company incurred $1,470,000, $561,000 and 34,000, respectively, in property management fees to the Property Manager.

Accounts Payable Due to Affiliates

The following amounts were outstanding due to affiliates as of December 31, 2013 and 2012 (amounts in thousands):


Entity	Fee	December 31,
Entity	Fee	2013		2012
Carter/Validus Advisors, LLC and its affiliates	Acquisition costs	$	1	$	3
Carter/Validus Advisors, LLC and its affiliates	Asset management fees		102		278
Carter Validus Real Estate Management Services, LLC	Property management fees		105		63
Carter/Validus Advisors, LLC and its affiliates	General and administrative costs		235		121
Carter/Validus Advisors, LLC and its affiliates	Offering costs		253		5,209

		$	696	$	5,674

Note 14—Business Combinations

During the year ended December 31, 2013, the Company completed 12 acquisitions (nine medical facilities and three data centers) that were determined to be business combinations, comprised of 12 buildings with an aggregate 696,000 square feet of gross leasable area. The aggregate purchase price of the acquisitions determined to be business combinations was $187,602,000, plus closing costs.

F-25

Results of operations for the acquisitions determined to be business combinations are reflected in the accompanying consolidated statements of comprehensive income (loss) for the year ended December 31, 2013 for the period subsequent to the acquisition date of each property. For the period from the acquisition date through December 31, 2013, the Company recognized $9,830,000 of revenues and net loss of $795,000 for business combinations in 2013. In addition, during the year ended December 31, 2013, the Company incurred aggregate non-recurring charges related to acquisition fees and costs of $5,138,000 related to acquisitions determined to be business combinations, which are included in the accompanying consolidated statements of comprehensive income (loss).

The following table summarizes management’s allocation of the fair value of the 12 acquisitions determined to be business combinations for the year ended December 31, 2013 (amounts in thousands):


	Total
Land	$	15,910
Buildings and improvements		151,648
In-place leases		19,963
Tenant improvements		2,869
Ground leasehold asset		1,105

Total assets acquired		191,495

Below-market leases		(3,893	)

Total liabilities acquired		(3,893	)

Net assets acquired	$	187,602

Assuming the business combinations described above had occurred on January 1, 2012, pro forma revenues, net income and net income attributable to the Company would have been as follows for the 12 month periods below (amounts in thousands, unaudited):


	For the Year Ended December 31,
	2013		2012
Pro forma basis (unaudited):
Revenues	$	72,016	$	67,055
Net income	$	28,287	$	24,718
Net income attributable to the Company	$	25,947	$	22,225

The pro forma results are not necessarily indicative of the operating results that would have been obtained had the business combinations occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.

Note 15—Segment Reporting

The Company aggregates data centers and medical facilities into two operating segments for reporting purposes. The Company’s investments in data centers and medical facilities are based on certain underwriting assumptions and operating criteria, which are different for data centers and medical facilities. Management reviews the performance and makes operating decisions based on these two reportable segments. There were no intersegment sales or transfers as of December 31, 2013.

The Company evaluates performance based on net operating income of the combined properties in each segment. Net operating income, a non-GAAP financial measure, is defined as total revenues, less rental expenses, which excludes depreciation and amortization, general and administrative expenses, acquisition related

F-26

expenses, asset management fee, interest expense and interest income. The Company believes that segment profit serves as a useful supplement to net income (loss) because it allows investors and management to measure unlevered property-level operating results and to compare operating results to the operating results of other real estate companies and between periods on a consistent basis. Segment profit should not be considered as an alternative to net income (loss) determined in accordance with GAAP as an indicator of financial performance, and accordingly, the Company believes that in order to facilitate a clear understanding of the consolidated historical operating results, segment profit should be examined in conjunction with net income (loss) as presented in the accompanying consolidated financial statements and data included elsewhere in this Annual Report on Form 10-K.

Interest expense, other income, depreciation and amortization and other expenses are not allocated to individual segments for purposes of assessing segment performance.

Non-segment assets primarily consist of corporate assets including cash and cash equivalents, real estate and escrow deposits, deferred financing costs, real estate-related notes receivables and other assets not attributable to individual properties.

Summary information for the reportable segments during the years ended December 31, 2013, 2012 and 2011, are as follows (amounts in thousands):


	Data Centers		Medical Facilities		For the Year Ended December 31, 2013
Revenue:
Rental, parking and tenant reimbursement revenue	$	40,655	$	21,827	$	62,482
Expenses:
Rental and parking expenses		10,458		1,457		11,915

Segment net operating income	$	30,197	$	20,370	$	50,567

Revenue:
Real estate-related notes receivables interest income						5,817
Expenses:
General and administrative expenses						2,458
Acquisition related expenses						5,615
Asset management fees						2,343
Depreciation and amortization						18,749

Income from operations						27,219
Other income (expense):
Interest and other income (expense)						53
Interest expense						(12,593	)

Consolidated net income					$	14,679

F-27


	Data Centers		Medical Facilities		For the Year Ended December 31, 2012
Revenue:
Rental, parking and tenant reimbursement revenue	$	23,471	$	4,283	$	27,754
Expenses:
Rental and parking expenses		6,792		274		7,066

Segment net operating income	$	16,679	$	4,009	$	20,688

Revenue:
Real estate-related notes receivables interest income						692
Expenses:
General and administrative expenses						1,039
Acquisition related expenses						11,474
Asset management fees						133
Depreciation and amortization						8,080

Income from operations						654
Other income (expense):
Interest and other income (expense)						(34	)
Interest expense						(6,260	)

Consolidated net loss					$	(5,640	)


	Data Centers		Medical Facilities		For the Year Ended December 31, 2011
Revenue:
Rental, parking and tenant reimbursement revenue	$	1,345	$	—	$	1,345
Expenses:
Rental and parking expenses		96		—		96

Segment net operating income	$	1,249	$	—	$	1,249

Revenue:
Real estate-related notes receivables interest income						—
Expenses:
General and administrative expenses						529
Acquisition related expenses						1,084
Asset management fees						146
Depreciation and amortization						517

Loss from operations						(1,027	)
Other income (expense):
Interest and other income (expense)						1
Interest expense						(413	)

Consolidated net loss					$	(1,439	)

F-28

Assets by reportable segments as of December 31, 2013 and 2012 are as follows (amounts in thousands):


	December 31,
	2013		2012
Assets by segment:
Data centers	$	639,009	$	295,021
Medical facilities		358,584		158,743
All other		67,071		30,033

Total assets	$	1,064,664	$	483,797

Capital additions by reportable segments for the years ended December 31, 2013 and 2012 are as follows (amounts in thousands):


	For the Year Ended December 31,
	2013		2012
Capital additions by segment:
Data centers	$	348,336	$	219,266
Medical facilities		200,700		147,344
All other		—		—

Total capital additions	$	549,036	$	366,610

Note 16—Fair Value

Notes payable—Fixed Rate—The estimated fair value of notes payable—fixed rate measured using quoted prices and observable inputs from similar liabilities (Level 2) was approximately $139,142,000 and $121,724,000 as of December 31, 2013 and December 31, 2012, respectively. The carrying value of the notes payable—fixed rate was $137,049,000 and $119,269,000 as of December 31, 2013 and December 31, 2012, respectively.

Notes payable—Variable and KeyBank Credit Facility—The carrying value of the notes payable—variable was $64,128,000 and $37,578,000 as of December 31, 2013 and December 31, 2012, respectively, which approximates its fair value. The carrying value of the KeyBank Credit Facility was $152,000,000 and $55,500,000 as of December 31, 2013 and December 31, 2012, respectively.

Real estate-related notes receivables—The estimated fair value of the real estate-related notes receivables was $58,176,000 million and $27,664,000 million as of December 31, 2013 and 2012, respectively, as compared to the carrying value of $54,080,000 million and $23,711,000 million as of December 31, 2013 and 2012, respectively. The fair value of the Company’s real estate-related notes receivable is estimated using quoted prices and observable inputs from similar instruments (Level 2).

Derivative instruments—Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amount the Company could realize, or be liable for, on disposition of the financial instruments. The Company has determined that the majority of the inputs used to value its interest rate swaps fall within Level 2 of the fair value hierarchy. The credit valuation adjustment associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and the respective counterparty. However, as of December 31, 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions, and has determined that the credit valuation adjustments are not significant to the overall valuation of its interest rate swaps. As a result, the Company determined that its interest rate swaps valuation in its entirety is classified in Level 2 of the fair value hierarchy.

F-29

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis as of December 31, 2013 and December 31, 2012 (amounts in thousands):


	December 31, 2013
	Fair Value Hierarchy
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets:
Derivative assets	$	—	$	644		$	—	$	644
Liabilities:
Derivative liabilities	$	—	$	(44	)	$	—	$	(44	)

	December 31, 2012
	Fair Value Hierarchy
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets:
Derivative assets	$	—	$	—		$	—	$	—
Liabilities:
Derivative liabilities	$	—	$	(963	)	$	—	$	(963	)

Note 17—Derivative Instruments and Hedging Activities

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives designated, and that qualify, as cash flow hedges is recorded in accumulated other comprehensive income (loss) in the accompanying consolidated statements of stockholders’ equity and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the year ended December 31, 2013, such derivatives were used to hedge the variable cash flows associated with variable rate debt. The ineffective portion of changes in fair value of the derivatives is recognized directly in earnings. During the years ended December 31, 2013 and 2012, no gains or losses were recognized due to ineffectiveness of hedges of interest rate risk.

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $1,092,000 will be reclassified from accumulated other comprehensive income as an increase to interest expense.

F-30

The following table summarizes the notional amount and fair value of the Company’s derivative instruments (amounts in thousands):

December 31,

2013

2012

Derivatives Designated
as Hedging Instruments

Balance Sheet
Location

Effective
Dates

Maturity
Dates

Outstanding
Notional
Amount

Fair Value of

Outstanding
Notional
Amount

Fair Value of

Asset

(Liability)

Asset

(Liability)

Interest rate swap

Other assets/Accounts
payable and other liabilities

10/12/2012 to
12/10/2013

10/11/2017 to
12/10/2018

119,128

644

(44

)

75,100

—

(963

)

Additional disclosures related to the fair value of the Company’s derivative instruments are included in Note 2—“Summary of Significant Accounting Policies” to these consolidated financial statements. The notional amount under the agreements is an indication of the extent of the Company’s involvement in each instrument at the time, but does not represent exposure to credit, interest rate or market risks.

Accounting for changes in the fair value of a derivative instrument depends on the intended use and designation of the derivative instrument. The Company designated the interest rate swaps as cash flow hedges to hedge the variability of the anticipated cash flows on its variable rate notes payable. The change in fair value of the effective portion of the derivative instrument that is designated as a hedge is recorded in other comprehensive income (loss), or OCI, in the accompanying consolidated statements of comprehensive income (loss).

The table below summarizes the amount of income or losses recognized on interest rate derivatives designated as cash flow hedges for the years ended December 31, 2013 and 2012 (amounts in thousands):


	For the Year Ended December 31,
Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps)	2013		2012
Amount of gain (loss) recognized in OCI on derivatives (effective portion)	$	825	$	(1,011	)
Amounts reclassified from accumulated other comprehensive income (loss) (effective portion)	$	738	$	48

Credit Risk-Related Contingent Features

The Company has agreements with each of its derivative counterparties that contain cross-default provisions, whereby if the Company defaults on certain of its unsecured indebtedness, then the Company could also be declared in default on its derivative obligations, resulting in an acceleration of payment thereunder.

In addition, the Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company believes it mitigates its credit risk by entering into agreements with credit-worthy counterparties. The Company records credit risk valuation adjustments on its interest rate swaps based on the respective credit quality of the Company and the counterparty. As of December 31, 2013, the fair value of derivatives in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk related to these agreements, was $66,000. As of December 31, 2013, there were no termination events or events of default related to the interest rate swaps.

F-31

Tabular Disclosure Offsetting Derivatives

The Company has elected not to offset derivative positions in its consolidated financial statements. The following table presents the effect on the Company’s financial position had the Company made the election to offset its derivative positions as of December 31, 2013 and December 31, 2012 (amounts in thousands):


Offsetting of Derivative Assets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet				Net Amount
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets presented in the Balance Sheet		Financial Instruments Collateral		Cash Collateral		Net Amount
December 31, 2013	$	644	$	—	$	644	$	—	$	—	$	644

December 31, 2012	$	—	$	—	$	—	$	—	$	—	$	—


Offsetting of Derivative Liabilities
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Balance Sheet		Net Amounts of Liabilities presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet				Net Amount
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Balance Sheet		Net Amounts of Liabilities presented in the Balance Sheet		Financial Instruments Collateral		Cash Collateral		Net Amount
December 31, 2013	$	44	$	—	$	44	$	—	$	—	$	44

December 31, 2012	$	963	$	—	$	963	$	—	$	—	$	963

The Company reports derivatives in the accompanying consolidated balance sheets as other assets and accounts payable and other liabilities.

Note 18—Accumulated Other Comprehensive Income (Loss)

The following table presents a roll forward of amounts recognized in accumulated other comprehensive income (loss) by component for the year ended December 31, 2013 (amounts in thousands):


	Unrealized Income (Loss) on Derivative Instruments			Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2012	$	(963	)	$	(963	)
Other comprehensive income before reclassification		825			825
Amounts reclassified from accumulated other comprehensive income to net income (effective portion)		738			738

Other comprehensive income		1,563			1,563

Balance as of December 31, 2013	$	600		$	600

The following table presents reclassifications out of accumulated other comprehensive loss for the year ended December 31, 2013 (amounts in thousands):

F-32

Note 19—Income Taxes

For federal income tax purposes, distributions to stockholders are characterized as ordinary dividends, capital gain distributions, or nontaxable distributions. Nontaxable distributions will reduce U.S. stockholders’ basis in their shares. The following table shows the character of distributions the Company paid on a percentage basis during the years ended December 31, 2013, 2012 and 2011:


	For the Year Ended December 31,
Character of Distributions:	2013			2012			2011
Ordinary dividends		61.48	%		19.78	%		—
Nontaxable distributions		38.52	%		80.22	%		100.00	%

Total		100.00	%		100.00	%		100.00	%

The Company has concluded that there was no impact related to uncertain tax provisions from the results of the operations of the Company for the years ended December 31, 2013, 2012 and 2011. The Company’s policy is to recognize accrued interest related to unrecognized tax benefits as a component of interest expense and penalties related to unrecognized tax benefits as a component of general and administrative expenses. From inception through December 31, 2013, the Company has not recognized any interest expense or penalties related to unrecognized tax benefits. The United States of America is the major tax jurisdiction for the Company, and the earliest tax year subject to examination is 2010.

Note 20—Economic Dependency

The Company is dependent on the Advisor and its affiliates for certain services that are essential to the Company, including the sale of the Company’s shares of common and preferred stock available for issue; the identification, evaluation, negotiation, purchase and disposition of real estate investments and other investments; the management of the daily operations of the Company’s real estate portfolio; and other general and administrative responsibilities. In the event that the Advisor or its affiliates are unable to provide the respective services, the Company will be required to obtain such services from other sources.

F-33

Note 21—Selected Quarterly Financial Data (Unaudited)

Presented in the following table is a summary of the unaudited quarterly financial information for the years ended December 31, 2013 and 2012. The Company believes that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly, and in accordance with GAAP, the selected quarterly information (amounts in thousands, except shares and per share data):


	2013
	Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Revenue	$	21,630		$	17,846		$	15,578		$	13,245
Expenses		(11,587	)		(10,280	)		(9,938	)		(9,275	)

Income from operations		10,043			7,566			5,640			3,970
Other expense		(3,515	)		(3,119	)		(3,118	)		(2,788	)

Consolidated net income		6,528			4,447			2,522			1,182

Less: Net income attributable to noncontrolling interests in consolidated partnership		(584	)		(597	)		(521	)		(319	)

Net income attributable to the Company	$	5,944		$	3,850		$	2,001		$	863

Net income per common share attributable to common stockholders:
Basic	$	0.09		$	0.08		$	0.06		$	0.04

Diluted	$	0.09		$	0.08		$	0.06		$	0.04

Weighted average number of common shares outstanding:
Basic		63,815,605			46,757,918			33,830,429			23,938,747

Diluted		63,830,305			46,774,585			33,844,471			23,954,477


	2012
	Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Revenue	$	10,944		$	7,428		$	5,498		$	4,576
Expenses		(11,423	)		(7,450	)		(4,189	)		(4,730	)

(Loss) income from operations		(479	)		(22	)		1,309			(154	)
Other expense		(2,416	)		(1,509	)		(1,203	)		(1,166	)

Consolidated net (loss) income		(2,895	)		(1,531	)		106			(1,320	)

Less: Net income attributable to noncontrolling interests in consolidated partnerships		(759	)		(685	)		(768	)		152

Net loss attributable to the Company	$	(3,654	)	$	(2,216	)	$	(662	)	$	(1,168	)

Net loss per common share attributable to common stockholders:
Basic	$	(0.22	)	$	(0.20	)	$	(0.09	)	$	(0.29	)

Diluted	$	(0.22	)	$	(0.20	)	$	(0.09	)	$	(0.29	)

Weighted average number of common shares outstanding:
Basic		16,989,505			11,341,730			7,233,405			4,076,195

Diluted		16,989,505			11,341,730			7,233,405			4,076,195

F-34

Note 22—Subsequent Events

Distributions Paid

On January 2, 2014, the Company paid aggregate distributions of $4,150,000 ($2,122,000 in cash and $2,028,000 in shares of the Company’s common stock pursuant to the DRIP), which related to distributions declared for each day in the period from December 1, 2013 through December 31, 2013. On February 3, 2014, the Company paid aggregate distributions of $4,512,000 ($2,291,000 in cash and $2,221,000 in shares of the Company’s common stock pursuant to the DRIP), which related to distributions declared for each day in the period from January 1, 2014 through January 31, 2014. On March 3, 2014, the Company paid aggregate distributions of $4,580,000 ($2,302,000 in cash and $2,278,000 in shares of the Company’s common stock pursuant to the DRIP), which related to distributions declared for each day in the period from February 1, 2014 through February 28, 2014.

Distributions Declared

On each of January 7, 2014 and March 3, 2014, the board of directors of the Company approved and declared a distribution to the Company’s stockholders of record as of the close of business on each day of the period commencing on March 1, 2014 and ending on May 31, 2014. The distributions will be calculated based on 365 days in the calendar year and equal to $0.001917808 per share of common stock, which will be equal to an annualized distribution rate of 7.0%, assuming a purchase price of $10.00 per share. The distributions declared for each record date in March 2014, April 2014 and May 2014 will be paid in April 2014, May 2014 and June 2014, respectively. The distributions will be payable to stockholders from legally available funds therefor.

Loan Agreement for Lubbock Heart Hospital

On January 27, 2014, in connection with the acquisition of the Lubbock Heart Hospital, the Company, through a wholly-owned subsidiary, entered into a loan agreement with Texas Capital Bank, National Association to obtain a loan in the principal amount of $20,466,000. The loan agreement provides for (i) a 30 day LIBOR plus 335 basis points; (ii) a maturity date of January 26, 2019, subject to the Company’s right to two 12-month extensions; and (iii) prepayment in whole at any time during the term of the loan.

Walnut Hill Medical Center

On February 25, 2014, the Company, through a wholly-owned subsidiary of the Operating Partnership, completed the acquisition of a hospital, or the Walnut Hill Medical Center, located in Dallas, Texas, for a purchase price of $98,486,000, plus closing costs. The Walnut Hill Medical Center is leased to a single tenant. With respect to this acquisition, the Company has not completed its initial fair value-based purchase price allocation; it is therefore, impractical to provide pro forma information. In connection with the Company’s acquisition of the Walnut Hill Medical Center, the borrowers repaid, in full, the outstanding balance of the Walnut Hill Property Company Loan.

Loan Agreement for Walnut Hill Medical Center

On February 25, 2014, in connection with the acquisition of the Walnut Hill Medical Center, the Company, through a wholly-owned subsidiary, entered into a loan agreement with Capital One, National Association and Premier Bank Texas, or the Walnut Hill Loan Agreement, to obtain an aggregate principal amount of $34,000,000. The loan agreement provides for a 30 day LIBOR plus 400 basis points with a maturity date of February 25, 2019. Coincident with the entry into the Walnut Hill Loan Agreement, the Company entered into an interest rate swap agreement with Capital One, National Association to effectively fix the variable interest rate on the loan at 6.195% per annum. The term of the swap agreement is co-terminus with the loan.

Loan Agreement for AT&T California Data Center

On February 26, 2014, in connection with the acquisition of the AT&T California Data Center, the Company, through a wholly-owned subsidiary, entered into a loan agreement with Bank of America, National Association, Cadence Bank, National Association and SunTrust Bank to obtain an aggregate principal amount of

F-35

$74,000,000. The loan agreement provides for a 30 day LIBOR plus 225 basis points with a maturity date of February 26, 2019. As of March 14, 2014, the outstanding balance of the loan was $37,000,000. The Company has the option to draw down additional funds until August 26, 2014. On February 27, 2014, the Company entered into interest rate swap agreements with Bank of America, National Association and Cadence Bank, National Association for $24,500,000 and $12,500,000, respectively, to effectively fix the variable interest rate on the loan at 3.82375% per annum. The terms of the swap agreements are co-terminus with the loan.

Medistar Loan

On March 4, 2014, the Company modified the Medistar Loan (previously referred to as the Walnut Hill Bridge Loan) to extend the maturity date to the earlier to occur of: (i) the sale or refinancing of the property under construction for which the proceeds from the loan were used and (ii) December 31, 2014. As of December 31, 2013, the outstanding principal balance of the Medistar Loan was $9,500,000. As of December 31, 2013, an affiliate of the Company had entered into a purchase agreement to purchase the property under construction when the construction is completed.

Cypress Pointe Surgical Hospital

On March 14, 2014, the Company, through its wholly-owned subsidiary, completed the acquisition of a 63,000 square foot medical facility, or the Cypress Pointe Surgical Hospital, located in Hammond, Louisiana, for a purchase price of $25,200,000, plus closing costs. The Cypress Pointe Surgical Hospital is leased to a single tenant. With respect to this acquisition, the Company has not completed its initial fair value-based purchase price allocation; it is therefore, impractical to provide pro forma information.

Increase in Borrowing Base Availability Under the KeyBank Credit Facility

On March 14, 2014, the Company added the Cypress Pointe Surgical Hospital to the collateral pool of the KeyBank Credit Facility, which increased the borrowing base availability under the KeyBank Credit Facility by approximately $13,922,000. As of March 14, 2014, the Company’s borrowing base availability under the KeyBank Credit Facility was $197,290,000 and the outstanding balance under the KeyBank Credit Facility was $55,000,000.

Status of the Offering

As of March 14, 2014, the Company had received and accepted subscriptions for 96,964,000 shares of the Company’s common stock, or $963,696,000 in gross offering proceeds, including shares of its common stock issued pursuant to its DRIP. As of March 14, 2014, the Company had approximately 78,036,000 shares of common stock remaining in the Offering.

F-36

CARTER VALIDUS MISSION CRITICAL REIT, INC.

SCHEDULE III

REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION

December 31, 2013

(in thousands)


					Initial Cost				Cost Capitalized Subsequent to Acquisition			Gross Amount Carried at December 31, 2013(b)						Accumulated Depreciation(c)		Date Acquired
Property Description	Location	Encumbrances			Land		Improvements		Cost Capitalized Subsequent to Acquisition			Land		Improvements		Total		Accumulated Depreciation(c)		Date Acquired
Richardson Data Center	Richardson, TX	$	14,889		$	449	$	30,213	$	(18	)	$	449	$	30,195	$	30,644	$	2,775		07/14/2011
180 Peachtree Data Center(d)	Atlanta, GA		53,747			4,280		110,728		990			4,280		111,718		115,998		8,419		01/03/2012
St. Louis Surgical Center	Creve Coeur, MO		6,123			808		8,748		—			808		8,748		9,556		598		02/09/2012
Northwoods Data Center	Norcross, GA		3,137			572		4,728		4			572		4,732		5,304		306		03/14/2012
Stonegate Medical Center	Austin, TX		—	(a)		1,904		7,749		—			1,904		7,749		9,653		750		03/30/2012
Southfield Data Center	Southfield, MI		—	(a)		736		6,514		443			736		6,957		7,693		540		05/25/2012
HPI Integrated Medical Facility	Oklahoma City, OK		5,835			789		8,752		—			789		8,752		9,541		434		06/28/2012
Texas Data Center Portfolio	Dallas/Ft. Worth, TX		—	(a)		7,110		61,395		—			7,110		61,395		68,505		3,067		08/16/2012
Baylor Medical Center	Dallas, TX		20,318			4,012		28,207		1			4,012		28,208		32,220		1,167		08/29/2012
Vibra Denver Hospital	Denver, CO		—	(a)		1,798		18,294		3			1,798		18,297		20,095		673		09/28/2012
Vibra New Bedford Hospital	New Bedford, MA		16,505			1,992		26,162		4			1,992		26,166		28,158		884		10/22/2012
Philadelphia Data Center	Philadelphia, PA		33,225			6,688		59,627		—			6,688		59,627		66,315		2,293		11/13/2012
Houston Surgery Center	Houston, TX		—	(a)		503		4,439		11			503		4,450		4,953		162		11/28/2012
Akron General Medical Center	Green, OH		—	(a)		2,936		40,956		—			2,936		40,956		43,892		1,145		12/28/2012
Grapevine Hospital	Grapevine, TX		13,773			962		22,712		72			962		22,784		23,746		594		02/25/2013
Raleigh Data Center	Morrisville, NC		—	(a)		1,909		19,302		—			1,909		19,302		21,211		604		03/21/2013
Andover Data Center	Andover, MA		—	(a)		2,279		11,006		—			2,279		11,006		13,285		391		03/28/2013
Wilkes-Barre Healthcare Facility	Mountain Top, PA		—	(a)		335		4,040		—			335		4,040		4,375		88		05/31/2013
Fresenius Healthcare Facility	Goshen, IN		—	(a)		304		4,336		—			304		4,336		4,640		72		06/11/2013
Leonia Data Center	Leonia, NJ		—	(a)		3,406		11,354		—			3,406		11,354		14,760		242		06/26/2013
Physicians’ Specialty Hospital	Fayetteville, AR		—	(a)		322		22,303		—			322		22,303		22,625		356		06/28/2013
Christus Cabrini Surgery Center	Alexandria, LA		—	(a)		—		4,700		—			—		4,700		4,700		67		07/31/2013
Valley Baptist Wellness Center	Harlingen, TX		6,320			—		10,284		—			—		10,284		10,284		108		08/16/2013
Akron General Integrated Medical Facility	Green, OH		—	(a)		904		8,776		1			904		8,777		9,681		114		08/23/2013
Victory Medical Center Landmark	San Antonio, TX		—	(a)		3,440		29,477		3			3,440		29,480		32,920		314		08/29/2013
Post Acute/Warm Springs Rehab Hospital of Westover Hills	San Antonio, TX		—	(a)		1,740		20,485		—			1,740		20,485		22,225		176		09/06/2013
AT&T Wisconsin Data Center	Waukesha, WI		—	(a)		2,130		50,848		1			2,130		50,849		52,979		515		09/26/2013
AT&T Tennessee Data Center	Brentwood, TN		27,305			18,405		93,081		—			18,405		93,081		111,486		451		11/12/2013
Warm Springs Rehabilitation Hospital	San Antonio, TX		—	(a)		—		26,357		—			—		26,357		26,357		92		11/27/2013
AT&T California Data Center	San Diego, CA		—			17,590		119,673		—			17,590		119,673		137,263		197		12/17/2013
Lubbock Heart Hospital	Lubbock, TX		—			3,749		36,251		—			3,749		36,251		40,000		46		12/20/2013

		$	201,177		$	92,052	$	911,497	$	1,515		$	92,052	$	913,012	$	1,005,064	$	27,640

(a)

Property collateralized under the KeyBank Credit Facility. As of December 31, 2013, 19 commercial properties were collateralized under the KeyBank Credit Facility and the Company had $152,000,000 outstanding thereunder. The Texas Data Center Portfolio consists of two data center properties: the Plano Data Center and the Arlington Data Center.

(b)	The aggregated cost for federal income tax purposes is approximately $851,020,000.

(c)	The Company’s assets are depreciated or amortized using the straight-line method over the useful lives of the assets by class. Generally, tenant improvements and lease intangibles are amortized over the respective lease term, and improvements are depreciated over 15-40 years.

(d)	As of December 31, 2013, the Company controlled one property through a consolidated partnership consisting of $4,280,000 in land and $111,718,000 in acquired intangible assets and building and improvements with accumulated depreciation of $8,419,000.

S-1

CARTER VALIDUS MISSION CRITICAL REIT, INC.

SCHEDULE III

(CONTINUED)

December 31, 2013

(in thousands)


	2013			2012			2011
Real Estate
Balance at beginning of year	$	452,155		$	30,660		$	—
Additions:
Acquisitions		544,971			420,429			30,660
Acquisition fees and expenses capitalized		7,489			—			—
Improvements		449			1,066			—

Balance at end of year	$	1,005,064		$	452,155		$	30,660

Accumulated depreciation
Balance at beginning of year	$	(8,732	)	$	(517	)	$	—
Depreciation and amortization		(18,749	)		(8,080	)		(517	)
Above-market lease		(159	)		(135	)		—

Balance at end of year	$	(27,640	)	$	(8,732	)	$	(517	)

S-2

CARTER VALIDUS MISSION CRITICAL REIT, INC.

SCHEDULE IV

MORTGAGE LOANS ON REAL ESTATE

December 31, 2013

(in thousands)

Mortgage Loans

Receivable

Description

Location

Interest Rate
as of
December 31,
2013

Final
Maturity
Date

Periodic
Payment
Terms
(A)

Prior
Liens

Outstanding
Face Amount
of Mortgages

Carrying
Amount of
Mortgages

Medistar Loan

Hospital

Houston, TX

8.0

None

9,500

Landmark Loan

Hospital

Savannah, GA

9.0

12/17/2015

None

616

492

10,116

9,992

(A)	I = Interest only.

**	The Medistar Loan matures upon the earlier to occur of (i) the sale or refinancing of the property under construction; (ii) May 7, 2014 and (iii) the sale of the Walnut Hill Physicians Hospital. See Note 22—“Subsequent Events” for modifications to the Medistar Loan.

The following shows changes in the carrying amounts of mortgage loans receivable during the period:


	2013			2012		2011
Balance, beginning of period	$	—		$	—	$	—
Additions:
New mortgage loans		10,116			—		—
Capitalized loan origination costs		12			—		—
Amortization of commitment fees and capitalized loan origination costs		5			—		—
Deductions:
Principal payments of mortgage loans		—			—		—
Commitment fees, net of loan origination costs		(141	)		—		—

Balance, end of period	$	9,992		$	—	$	—

S-3

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	CARTER VALIDUS MISSION CRITICAL REIT, INC.
	(Registrant)

Date: March 19, 2014	By	/s/ JOHN CARTER
		John Carter
		Chief Executive Officer and President

Date: March 19, 2014	By	/s/ TODD M. SAKOW
		Todd M. Sakow
		Chief Financial Officer
		(Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Name	Capacity	Date

/S/ JOHN CARTER John Carter	Chief Executive Officer, President and Chairman of Board of Directors (Principal Executive Officer)	March 19, 2014

/S/ TODD M. SAKOW Todd M. Sakow	Chief Financial Officer (Principal Financial Officer)	March 19, 2014

/S/ MARIO GARCIA, JR. Mario Garcia, Jr.	Director	March 19, 2014

/S/ JONATHAN KUCHIN Jonathan Kuchin	Director	March 19, 2014

/S/ RANDALL GREENE Randall Greene	Director	March 19, 2014

/S/ RONALD RAYEVICH Ronald Rayevich	Director	March 19, 2014

EXHIBIT INDEX

Pursuant to Item 601 of Regulation S-K, this Exhibit Index immediately precedes the exhibits.

The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the period ended December 31, 2013 (and are numbered in accordance with Item 601 of Regulation S-K).


Exhibit No:

1.1		Dealer Manager Agreement by and between Carter Validus Mission Critical REIT, Inc. and SC Distributors, LLC (incorporated by reference to Exhibit 1.1 to the Registrant’s Pre-Effective Amendment No. 3 to Registration Statement on Form S-11, Commission File No. 333-165643, filed on November 16, 2010)

3.1		Articles of Amendment and Restatement (incorporated by reference to Registrant’s Pre-Effective Registration Statement on Form S-11, Commission File No. 333-165643, filed on November 16, 2010)

3.2		First Amendment to Articles of Amendment and Restatement (incorporated by reference to Registrant’s Current Report on Form 8-K filed on March 31, 2011)

3.3		Bylaws of Carter Validus Mission Critical REIT, Inc. (incorporated by reference to Registrant’s Pre-Effective Registration Statement on Form S-11, Commission No. 333-165643, filed on March 23, 2010)

3.4		Agreement of Limited Partnership of Carter/Validus Operating Partnership, LP (included as Exhibit 10.5 to the Registration Statement on Form S-11 (Registration No. 333-165643) filed on November 16, 2010, and incorporated herein by reference)

4.1		Subscription Agreement and Subscription Agreement Signature Page (included as Appendix C to the Supplement to the prospectus attached to Post-Effective Amendment No. 8, filed on January 29, 2013)

4.2		Distribution Reinvestment Plan (included as Appendix B to the prospectus attached to Post-Effective Amendment No. 8, filed on January 29, 2013)

4.3		Multi Product Subscription Agreement (included as Appendix F to the Supplement to the prospectus attached to Post-Effective Amendment No. 8, filed on January 29, 2013)

4.4		Carter Validus Mission Critical REIT, Inc. 2010 Restricted Share Plan (included as Exhibit 10.1 to our Current Report on Form 8-K filed on March 24, 2011, and incorporated herein by reference)

4.5		Form of Restricted Stock Award Agreement (included as Exhibit 10.6 to the Registration Statement on Form S-11 Registration No. 333-165643 filed on June 25, 2010, and incorporated herein by reference)

5.1		Opinion of Venable LLP as to legality (incorporated by reference to Exhibit 5.1 to the Registrant’s Pre-Effective Amendment No. 3 to Registration Statement on Form S-11, Commission No. 333-165643, filed November 16, 2010)

8.1		Opinion of Morris, Manning & Martin, LLP as to tax matters (incorporated by reference to Exhibit 8.1 to the Registrant’s Post-Effective Amendment No. 1 to Registration Statement on Form S-11, Commission No. 333-165643, filed April 4, 2011)

10.1		Dealer Manager Agreement, dated November 15, 2010 by and between Carter Validus Mission Critical REIT, Inc. and SC Distributors, LLC (included as Exhibit 1.1 to the Registration Statement on Form S-11 (Registration No. 333-165643) filed on November 16, 2010, and incorporated herein by reference)


Exhibit No:

10.2		Amended and Restated Advisory Agreement, dated November 26, 2010, by and between Carter Validus Mission Critical REIT, Inc. and Carter/Validus Advisors, LLC (included as Exhibit 10.2 to the Registration Statement on Form S-11 (Registration No. 333-165643) filed on November 29, 2010, and incorporated herein by reference)

10.3		First Amendment to Amended and Restated Advisory Agreement, dated March 29, 2011, by and between Carter Validus Mission Critical REIT, Inc. and Carter/Validus Advisors, LLC (included as Exhibit 10.1 to our Current Report on Form 8-K filed on March 31, 2011, and incorporated herein by reference)

10.4		Second Amendment to Amended and Restated Advisory Agreement by and between Carter Validus Mission Critical REIT, Inc., Carter/Validus Operating Partnership, LP and Carter/Validus Advisors, LLC, dated October 4, 2012 (included as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 4, 2012, and incorporated by reference herein)

10.5		Property Management and Leasing Agreement, dated November 12, 2010, by and among Carter Validus Mission Critical REIT, Inc., Carter/Validus Operating Partnership, LP, and Carter Validus Real Estate Management Services, LLC (included as Exhibit 10.3 to the Registration Statement on Form S-11 (Registration No. 333-165643) filed on November 16, 2010, and incorporated herein by reference)

10.6		Joinder Agreement by HC–1940 Town Park Boulevard, LLC to KeyBank National Association, as Agent, dated December 28, 2012 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on January 4, 2013, and incorporated herein by reference)

10.7		Joinder Agreement by Green Wellness Investors, LLLP to KeyBank National Association, as Agent, dated December 28, 2012 (included as Exhibit 10.2 to our Current Report on Form 8-K filed on January 4, 2013, and incorporated herein by reference)

10.8		Assignment of Leases and Rents by Green Wellness Investors, LLLP to KeyBank National Association, dated December 28, 2012 (included as Exhibit 10.3 to our Current Report on Form 8-K filed on January 4, 2013, and incorporated herein by reference)

10.9		Open-End Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing by Green Wellness Investors, LLLP, as Grantor, to KeyBank National Association, as Agent, dated December 28, 2012 (included as Exhibit 10.4 to our Current Report on Form 8-K filed on January 4, 2013, and incorporated herein by reference)

10.10		First Amendment to First Amended and Restated Credit Agreement and Amendment to Unconditional Guaranty of Payment and Performance, by and among Carter/Validus Operating Partnership, LP, Carter Validus Mission Critical REIT, Inc., the guarantors and the lenders party thereto, dated March 15, 2013 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on March 19, 2013, and incorporated herein by reference)

10.11		Term Loan Note from Carter/Validus Operating Partnership, LP to Capital One, National Association, dated March 15, 2013 (included as Exhibit 10.2 to our Current Report on Form 8-K filed on March 19, 2013, and incorporated herein by reference)

10.12		Revolving Credit Note from Carter/Validus Operating Partnership, LP to Capital One, National Association, dated March 15, 2013 (included as Exhibit 10.3 to our Current Report on Form 8-K filed on March 19, 2013, and incorporated herein by reference)

10.13		Joinder Agreement by HC-239 S. Mountain Boulevard Management, LLC to KeyBank National Association, as Agent, dated June 6, 2013 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on June 12, 2013, and incorporated herein by reference)

10.14		Joinder Agreement by HC-239 S. Mountain Boulevard, LP to KeyBank National Association, as Agent, dated June 6, 2013 (included as Exhibit 10.2 to our Current Report on Form 8-K filed on June 12, 2013, and incorporated herein by reference)


Exhibit No:

10.15		Assignment of Leases and Rents by HC-239 S. Mountain Boulevard, LP to KeyBank National Association, dated June 6, 2013 (included as Exhibit 10.3 to our Current Report on Form 8-K filed on June 12, 2013, and incorporated herein by reference)

10.16		Open-End Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing by HC-239 S. Mountain Boulevard, LP, as Mortgagor, to KeyBank National Association, as Agent, dated June 6, 2013 (included as Exhibit 10.4 to our Current Report on Form 8-K filed on June 12, 2013, and incorporated herein by reference)

10.17		Second Amendment to First Amended and Restated Credit Agreement, by and among CVOP, CVOP’s affiliates and the lenders party thereto, dated June 11, 2013 (included as Exhibit 10.5 to our Current Report on Form 8-K filed on June 12, 2013, and incorporated herein by reference)

10.18		Joinder Agreement by HC–2257 Karisa Drive, LLC to KeyBank National Association, as Agent, dated June 24, 2013 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on June 26, 2013, and incorporated herein by reference)

10.19		Assignment of Leases and Rents by HC–2257 Karisa Drive, LLC to KeyBank National Association, dated June 24, 2013 (included as Exhibit 10.2 to our Current Report on Form 8-K filed on June 26, 2013, and incorporated herein by reference)

10.20		Mortgage and Security Agreement by HC–2257 Karisa Drive, LLC, as Mortgagor, to KeyBank National Association, as Agent, dated June 24, 2013 (included as Exhibit 10.3 to our Current Report on Form 8-K filed on June 26, 2013, and incorporated herein by reference)

10.21		Joinder Agreement by DC-2 Christie Heights, LLC to KeyBank National Association, as Agent, dated July 26, 2013 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on August 1, 2013, and incorporated herein by reference)

10.22		Assignment of Leases and Rents by DC-2 Christie Heights, LLC to KeyBank National Association, dated July 26, 2013(included as Exhibit 10.2 to our Current Report on Form 8-K filed on August 1, 2013, and incorporated herein by reference)

10.23		Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing by DC-2 Christie Heights, LLC, as Mortgagor, to KeyBank National Association, as Agent, dated July 26, 2013 (included as Exhibit 10.3 to our Current Report on Form 8-K filed on August 1, 2013, and incorporated herein by reference)

10.24		Third Amendment to First Amended and Restated Credit Agreement and Amendment to Other Loan Documents, by and among Carter/Validus Operating Partnership, LP, Carter Validus Mission Critical REIT, Inc., and the guarantors and lenders party thereto, dated August 9, 2013 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.25		Term Loan Note from Carter/Validus Operating Partnership, LP to Capital One, National Association, dated August 9, 2013 (included as Exhibit 10.2 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.26		Revolving Credit Note from Carter/Validus Operating Partnership, LP to Capital One, National Association, dated August 9, 2013 (included as Exhibit 10.3 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.27		Term Loan Note from Carter/Validus Operating Partnership, LP to Bank of America, N.A., dated August 9, 2013 (included as Exhibit 10.4 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.28		Revolving Credit Note from Carter/Validus Operating Partnership, LP to Bank of America, N.A., dated August 9, 2013 (included as Exhibit 10.5 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)


Exhibit No:

10.29		Term Loan Note from Carter/Validus Operating Partnership, LP to Texas Capital Bank, N.A., dated August 9, 2013 (included as Exhibit 10.6 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.30		Revolving Credit Note from Carter/Validus Operating Partnership, LP to Texas Capital Bank, N.A., dated August 9, 2013 (included as Exhibit 10.7 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.31		Term Loan Note from Carter/Validus Operating Partnership, LP to Cadence Bank, N.A., dated August 9, 2013 (included as Exhibit 10.8 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.32		Revolving Credit Note from Carter/Validus Operating Partnership, LP to Cadence Bank, N.A., dated August 9, 2013 (included as Exhibit 10.9 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.33		Term Loan Note from Carter/Validus Operating Partnership, LP to SunTrust Bank, dated August 9, 2013 (included as Exhibit 10.10 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.34		Revolving Credit Note from Carter/Validus Operating Partnership, LP to SunTrust Bank, dated August 9, 2013 (included as Exhibit 10.11 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.35		Term Loan Note from Carter/Validus Operating Partnership, LP to Eastern Bank, dated August 9, 2013 (included as Exhibit 10.12 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.36		Revolving Credit Note from Carter/Validus Operating Partnership, LP to Eastern Bank, dated August 9, 2013 (included as Exhibit 10.13 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.37		Term Loan Note from Carter/Validus Operating Partnership, LP to Synovus Bank, dated August 9, 2013 (included as Exhibit 10.14 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.38		Revolving Credit Note from Carter/Validus Operating Partnership, LP to Synovus Bank, dated August 9, 2013 (included as Exhibit 10.15 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.39		Term Loan Note from Carter/Validus Operating Partnership, LP to KeyBank National Association, dated August 9, 2013 (included as Exhibit 10.16 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.40		Revolving Credit Note from Carter/Validus Operating Partnership, LP to KeyBank National Association, dated August 9, 2013 (included as Exhibit 10.17 to our Current Report on Form 8-K filed on August 9, 2013, and incorporated herein by reference)

10.41		Joinder Agreement by HC-1946 Town Park Boulevard, LLC to KeyBank National Association, as Agent, dated August 28, 2013 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on September 4, 2013, and incorporated herein by reference)

10.42		Joinder Agreement by Green Medical Investors, LLLP to KeyBank National Association, dated August 28, 2013 (included as Exhibit 10.2 to our Current Report on Form 8-K filed on September 4, 2013, and incorporated herein by reference)

10.43		Amended and Restated Assignment of Leases and Rents by Green Wellness Investors, LLLP and Green Medical Investors, LLLP, collectively as Assignor, to KeyBank National Association, as Agent, dated August 28, 2013 (included as Exhibit 10.3 to our Current Report on Form 8-K filed on September 4, 2013, and incorporated herein by reference)


Exhibit No:

10.44		Amended and Restated Open-end Mortgage, assignment of Leases and Rents, Security Agreement and Fixture Filings by Green Wellness Investors, LLLP, as Fee Mortgagor, Green Medical Investors, LLLP, as Leasehold Mortgagor, to KeyBank National Association, as Mortgagee, dated August 28, 2013 (included as Exhibit 10.4 to our Current Report on Form 8-K filed on September 4, 2013, and incorporated herein by reference)

10.45		Joinder Agreement by HC-5330 N. Loop 1604 West, LLC to KeyBank National Association, as Agent, dated September 19, 2013 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on September 20, 2013, and incorporated herein by reference)

10.46		Assignment of Leases and Rents by HC-5330 N. Loop 1604 West, LLC to KeyBank National Association, dated September 19, 2013 (included as Exhibit 10.2 to our Current Report on Form 8-K filed on September 20, 2013, and incorporated herein by reference)

10.47		Deed of Trust, Security Agreement and Assignment of Leases and Rents by HC-5330 N. Loop 1604 West, LLC, as Grantor, to Gary S. Farmer, as Trustee, for the benefit of KeyBank National Association, as Agent, dated September 19, 2013 (included as Exhibit 10.3 to our Current Report on Form 8-K filed on September 20, 2013, and incorporated herein by reference)

10.48		Joinder Agreement by HC-10323 State Highway 151, LLC to KeyBank National Association, as Agent, dated September 19, 2013 (included as Exhibit 10.4 to our Current Report on Form 8-K filed on September 20, 2013, and incorporated herein by reference)

10.49		Assignment of Leases and Rents by HC-10323 State Highway 151, LLC to KeyBank National Association, dated September 19, 2013 (included as Exhibit 10.5 to our Current Report on Form 8-K filed on September 20, 2013, and incorporated herein by reference)

10.50		Deed of Trust, Security Agreement and Assignment of Leases and Rents by HC-10323 State Highway 151, LLC, as Grantor, to Gary S. Farmer, as Trustee, for the benefit of KeyBank National Association, as Agent, dated September 19, 2013 (included as Exhibit 10.6 to our Current Report on Form 8-K filed on September 20, 2013, and incorporated herein by reference)

10.51		Joinder Agreement by DC- N15W24250 Riverwood Drive, LLC, to KeyBank National Association, as Agent, dated September 26, 2013 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on October 2, 2013, and incorporated herein by reference)

10.52		Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing by DC- N15W24250 Riverwood Drive, LLC, to KeyBank National Association, dated September 26, 2013 (included as Exhibit 10.2 to our Current Report on Form 8-K filed on October 2, 2013, and incorporated herein by reference)

10.53		Joinder Agreement by HC-3436 Masonic Drive, LLC to KeyBank National Association, as Agent, dated October 2, 2013 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on October 4, 2013, and incorporated herein by reference)

10.54		Assignment of Leases and Rents by HC-3436 Masonic Drive, LLC to KeyBank National Association, dated October 2, 2013 (included as Exhibit 10.2 to our Current Report on Form 8-K filed on October 4, 2013, and incorporated herein by reference)

10.55		Act of Leasehold Mortgage, Security Agreement and Assignment of Leases and Rents by HC-3436 Masonic Drive, LLC, as Mortgagor, to KeyBank National Association, as Agent, dated October 2, 2013 (included as Exhibit 10.3 to our Current Report on Form 8-K filed on October 4, 2013, and incorporated herein by reference)

10.56		Purchase Agreement, dated September 27, 2013, between BellSouth Telecommunications, LLC and Carter Validus Properties, LLC (included as Exhibit 10.1 to our Current Report on Form 8-K filed on November 18, 2013, and incorporated herein by reference)


Exhibit No:

10.57		First Amendment to Purchase Agreement, dated October 30, 2013, between BellSouth Telecommunications, LLC and Carter Validus Properties, LLC (included as Exhibit 10.2 to our Current Report on Form 8-K filed on November 18, 2013, and incorporated herein by reference)

10.58		Second Amendment to Purchase Agreement, dated November 4, 2013, between BellSouth Telecommunications, LLC and Carter Validus Properties, LLC (included as Exhibit 10.3 to our Current Report on Form 8-K filed on November 18, 2013, and incorporated herein by reference)

10.59		Assignment of Real Estate Sale Contract, dated November 12, 2013, between Carter Validus Properties, LLC and DC-402 Franklin Road, LLC (included as Exhibit 10.4 to our Current Report on Form 8-K filed on November 18, 2013, and incorporated herein by reference)

10.60		Lease Agreement, dated November 12, 2013, between DC-402 Franklin Road, LLC, as Lessor, AT&T Services, Inc., as Lessee, and AT&T Teleholdings, Inc., as Guarantor (included as Exhibit 10.5 to our Current Report on Form 8-K filed on November 18, 2013, and incorporated herein by reference)

10.61		Purchase Agreement, dated November 22, 2013, between Pacific Bell Telephone Company, LLC and Carter Validus Properties, LLC (included as Exhibit 10.1 to our Current Report on Form 8-K filed on December 19, 2013, and incorporated herein by reference)

10.62		Assignment of Real Estate Sale Contract, dated December 17, 2013, between Carter Validus Properties, LLC and DC-7337 Trade Street, LLC (included as Exhibit 10.2 to our Current Report on Form 8-K filed on December 19, 2013, and incorporated herein by reference)

10.63		Lease Agreement, dated December 17, 2013, between DC-7337 Trade Street, LLC, as Lessor, AT&T Services, Inc., as Lessee, and AT&T Teleholdings, Inc., as Guarantor (included as Exhibit 10.3 to our Current Report on Form 8-K filed on December 19, 2013, and incorporated herein by reference)

10.64*		Joinder Agreement, dated November 27, 2013, by HC-5101 Medical Drive, LLC, delivered to KeyBank National Association

10.65*		Assignment of Leases and Rents, dated November 27, 2013, by HC-5101 Medical Drive, LLC, to KeyBank National Association

10.66*		Deed of Trust, Security Agreement and Assignment of Leases and Rents by HC-5101 Medical Drive, LLC for the benefit of KeyBank National Association, dated November 27, 2013

21.1		List of Subsidiaries (incorporated by reference to Registrant’s Pre-Effective Amendment No. 3 to Registration Statement on Form S-11, Commission No. 333-165643, filed on November 16, 2010)

31.1*		Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**		Certification of Chief Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**		Certification of Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith.

**	Furnished herewith.