8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

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

Date of Report (Date of earliest event reported): August 14, 2017

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

(Exact Name of Registrant as Specified in its Charter)

Maryland	000-52596	30-0309068
(State or other jurisdiction of incorporation)	(Commission File No.)	(I.R.S. Employer Identification No.)

518 Seventeenth Street, 17th Floor, Denver CO	80202
(Address of Principal Executive Offices)	(Zip Code)

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company    ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Item 2.02    Results of Operations and Financial Condition.

Item 7.01    Regulation FD Disclosure.

On August 14, 2017, Dividend Capital Diversified Property Fund Inc. (referred to herein as the “Company,” “we,” “our,” or “us”) issued a press release announcing second quarter 2017 financial results. A copy of the press release is furnished with this report as Exhibit 99.1, and is incorporated herein by reference. In addition, we are furnishing with this report as Exhibit 99.2 a document titled Portfolio Performance and Operational Review for the quarter ended June 30, 2017, which is also incorporated herein by reference.

The information in this report and the exhibits attached hereto is being furnished, not filed, for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and pursuant to Items 2.02 and 7.01 of Form 8-K will not be incorporated by reference into any filing under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.

Item 9.01    Financial Statements and Exhibits.

(d)    Exhibits

Exhibit Number	Description
99.1	Press release, dated August 14, 2017 *
99.2	Portfolio Performance and Operational Review for the quarter ended June 30, 2017 *

*    Filed herewith.

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SIGNATURES

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

	Dividend Capital Diversified Property Fund Inc.
August 14, 2017
	By:	/S/    M. KIRK SCOTT
		M. Kirk Scott
		Chief Financial Officer

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EX-99.1

Dividend Capital Diversified Property Fund Inc. 8-K

Exhibit 99.1

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND

PROVIDES SECOND QUARTER2017 PORTFOLIO UPDATE

0.87% total shareholder return for the quarter; 6.62% total shareholder return for the last twelve months ¹ 

Repaid three mortgage notes for $50.8 million with a weighted average interest rate of 6.24% and entered into one mortgage note borrowing for $75.0 million with an interest rate spread of 2.25% over one-month LIBOR.

Sold one retail property in Greater Boston for $4.5 million and three industrial properties in Louisville, KY for $26.8 million.

DENVER - August 14, 2017 - Dividend Capital Diversified Property Fund Inc. (“DPF”), a public reporting, daily NAV REIT (NASDAQ: ZDPFAX; ZDPFEX; ZDPFIX; ZDPFWX) reported results today for the second quarter ended June 30, 2017.

Total Shareholder Return

Total shareholder return, which represents the compound annual rate of return assuming reinvestment of all dividend distributions before the impact of up-front sales commissions and class-specific expenses as of June 30, 2017, was as follows for the indicated timeframe:

• Quarter ended June 30, 2017:            0.87%

• Year-to-date ended June 30, 2017:            1.43%

• Twelve months ended June 30, 2017:        6.62%

• Three years ended June 30, 2017 (annualized):    7.38% (23.82% cumulative)

• Since NAV share class inception² (annualized):     7.75% (42.54% cumulative)

Class A, Class W, and Class I shareholders had lower total returns than those set forth above due to up-front sales commissions and/or class-specific expenses.

Portfolio Overview

As of June 30, 2017, DPF’s portfolio consisted of 51 operating properties located in 19 geographic markets in the United States, aggregating to approximately 8.3 million square feet. As of June 30, 2017, DPF’s real property portfolio was approximately 86.9% leased to approximately 500 tenants. These properties had an estimated fair value of approximately $2.3 billion (calculated in accordance with DPF’s valuation procedures), including:

• 16 office properties located in 13 geographic markets, aggregating approximately 3.4 million net rentable square feet, with an aggregate fair value amount of approximately $1.2 billion;

• 33 retail properties located in nine geographic markets, aggregating approximately 3.7 million net rentable square feet, with an aggregate fair value amount of approximately $1.0 billion; and

• Two industrial properties located in two geographic markets, aggregating approximately 1.2 million net rentable square feet, with an aggregate fair value amount of approximately $54.9 million.

DPF’s leverage ratio, based on the fair value of its investments, was 49.1% as of June 30, 2017. The weighted average stated interest rate of DPF’s borrowings was 3.3% as of June 30, 2017.

1. All returns figures exclude up-front sales commissions and class-specific expenses

2. Measured from September 30, 2012. Investors in our fixed price offering prior to NAV inception are likely to have a lower total return.

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Financial Results for the Three and Six Months Ended June 30, 2017

Net income according to generally accepted accounting principles (“GAAP”) for the quarter ended June 30, 2017 was $8.4 million, or $0.05 per basic and diluted share. This compares to a GAAP net income for the quarter ended June 30, 2016 of $0.1 million, or $0.00 per basic and diluted share.

GAAP net income for the six months ended June 30, 2017 was $10.2 million or $0.06 per basic and diluted share. This compares to GAAP net income for the six months ended June 30, 2016 of $48.4 million or $0.27 per basic and diluted share.

NAREIT-defined funds from operations (“FFO”), a non-GAAP financial measure, for the quarter ended June 30, 2017 was $17.9 million or $0.11 per basic and diluted share. This compares to FFO for the quarter ended June 30, 2016 of $20.3 million or $0.12 per basic and diluted share.

FFO for the six months ended June 30, 2017 was $37.6 million or $0.24 per basic and diluted share. This compares to FFO for the six months ended June 30, 2016 of $46.4 million, or $0.26 per basic and diluted share.

See the following section entitled "Non-GAAP Supplemental Financial Measure" for a reconciliation of this non-GAAP financial measure to net income attributable to common stockholders and further discussion of the use of non-GAAP financial measures.

Portfolio and Leasing Summary

During the second quarter, net operating income for all operating properties that we acquired prior to January 1, 2016 and owned through June 30, 2017 ("Same-Store NOI") decreased 4.8% compared to the quarter ended March 31, 2017, and decreased 11.5% when compared to the same quarter in 2016. The decrease in Same-Store NOI was primarily a result of the expiration of our lease with Sybase Inc. ("Sybase") in January 2017, a 405,000 square foot lease with our second largest tenant as of December 31, 2016. Excluding Sybase, Same-Store NOI increased0.6% compared to the quarter ended March 31, 2017 and increased0.5% when compared to the same quarter in 2016.

When GAAP adjustments are excluded, Same-Store NOI decreased 4.9% compared to the quarter ended March 31, 2017, and decreased 12.4% when compared to the same quarter in 2016. When Sybase and GAAP adjustments are excluded, Same-Store NOI increased1.6% compared to the quarter ended March 31, 2017 and increased3.1% when compared to the same quarter in 2016.

During the second quarter, DPF signed 41 leases for approximately 217,000 square feet. On a comparable space basis, DPF signed 30 leases for approximately 168,000 square feet. The average growth in rents, on a GAAP basis, for the comparable leases signed in the second quarter was 54.8%. For the twelve months ended June 30, 2017, DPF signed 156 leases for approximately 1.1 million square feet. On a comparable basis, DPF signed 112 leases for approximately 787,000 square feet during the twelve months ended June 30, 2017. The average growth in rents, on a GAAP basis, for the comparable leases signed in the last twelve months was 32.3%.

The overall portfolio percentage leased was 86.9% as of June 30, 2017, compared to 87.8% on March 31, 2017 and 90.2% on June 30, 2016. Same-store percentage leased was 86.9% at June 30, 2017, compared to 87.0% at March 31, 2017 and 92.4% at June 30, 2016.

2

Non-GAAP Supplemental Financial Measure

DPF computes its financial results in accordance with GAAP. Below, DPF has provided reconciliations of FFO and net operating income ("NOI"), which are both non-GAAP supplemental financial measures, to the most directly comparable GAAP measures (amounts in thousands, except per share information). For more information about FFO and NOI, including why management believes such measures provide useful information, please see the Portfolio Performance and Operational Review furnished with this press release on Form 8-K filed with the SEC on August 14, 2017, available on DPF’s website, www.dividendcapitaldiversified.com, and the SEC’s website, www.sec.gov.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
Reconciliation of net earnings to FFO:
Net income attributable to common stockholders	$	6,805		$	117		$	8,466		$	43,899
Add (deduct) NAREIT-defined adjustments:
Depreciation and amortization expense	18,798			20,198			36,734			40,034
Gain on disposition of real property	(10,352		)	—			(10,352		)	(41,400		)
Impairment of real estate property	1,116			—			1,116			587
Noncontrolling interests’ share of net income	1,610			18			1,776			4,474
Noncontrolling interests’ share of FFO	(1,410		)	(1,499		)	(2,937		)	(4,578		)
FFO attributable to common shares-basic	16,567			18,834			34,803			43,016
FFO attributable to dilutive OP Units	1,360			1,456			2,823			3,334
FFO attributable to common shares-diluted	$	17,927		$	20,290		$	37,626		$	46,350
FFO per share-basic and diluted	$	0.11		$	0.12		$	0.24		$	0.26
Weighted average number of shares outstanding
Basic	145,288			161,209			147,577			162,581
Diluted	157,209			173,669			159,551			175,179

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	Three Months Ended									Six Months Ended
	June 30, 2017			March 31, 2017			June 30, 2016			June 30, 2017			June 30, 2016
Reconciliation of net income attributable to common stockholders to NOI
Net income attributable to common stockholders	$	6,805		$	1,661		$	117		$	8,466		$	43,899
Debt-related income	(229		)	(231		)	(237		)	(460		)	(475		)
Real estate depreciation and amortization expense	18,798			17,936			20,198			36,734			40,034
General and administrative expenses	2,024			2,250			2,338			4,274			4,958
Advisory fees, related party	3,451			3,490			3,671			6,941			7,436
Acquisition-related expenses	—			—			474			—			525
Impairment of real estate property	1,116			—			—			1,116			587
Other (income) and expense	89			109			69			198			11
Interest expense	10,163			9,684			10,422			19,847			21,383
Gain on extinguishment of debt and financing commitments	—			—			—			—			(5,136		)
Gain on sale of real property	(10,352		)	—			—			(10,352		)	(41,400		)
Net income attributable to noncontrolling interests	1,610			166			18			1,776			4,474
Total NOI	$	33,475		$	35,065		$	37,070		$	68,540		$	76,296
Less: 2016/2017 Acquisitions/Dispositions	(1,347		)	(1,332		)	(775		)	(2,679		)	(3,949		)
Total same store real property NOI	$	32,128		$	33,733		$	36,295		$	65,861		$	72,347
Reconciliation of Total NOI to NOI - cash basis
Total NOI	$	33,475		$	35,065		$	37,070		$	68,540		$	76,296
Net amortization of above- and below-market lease assets and liabilities, and other non-cash adjustments to rental revenue	(704		)	(554		)	(278		)	(1,258		)	(541		)
Straight line rent	238			117			205			355			446
NOI - cash basis	$	33,009		$	34,628		$	36,997		$	67,637		$	76,201
Less: 2016/2017 Acquisitions/Dispositions	(1,258		)	(1,229		)	(769		)	(2,487		)	(4,054		)
Total same store real property NOI - cash basis	$	31,751		$	33,399		$	36,228		$	65,150		$	72,147

About Dividend Capital Diversified Property Fund

Dividend Capital Diversified Property Fund is a public reporting NAV vehicle based in Denver, CO that invests in a diversified portfolio of commercial real estate assets. DPF owned 51 properties totaling approximately 8.3 million square feet in 19 geographic markets as of June 30, 2017. More information is available at www.dividendcapitaldiversified.com.

Forward-Looking Information

This material may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “will,” “expect(s),” “could,” “should,” and “continue” and similar statements are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results that are materially different than those described in the forward-looking statements. Dividend Capital Diversified Property Fund cannot give assurance that its expectations will be attained. Factors that could cause actual results to differ materially from Dividend Capital Diversified Property Fund’s expectations include, but are not limited to, the uncertainty of funding Dividend Capital Diversified Property Fund’s future capital needs, delays in the acquisition, development, and construction of real properties, changes in economic conditions generally and the real estate and securities markets specifically, and other risks detailed from time to time in Dividend Capital Diversified Property Fund’s Securities and Exchange Commission reports, particularly the section entitled “Risk Factors” in Item 1A of Dividend Capital Diversified Property Fund’s Annual Report on Form 10-K. Such forward-looking statements pertain only as of the date of this press release. Dividend Capital Diversified Property Fund expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Dividend Capital Diversified Property Fund’s expectations with regard thereto or change in events, conditions, or circumstances on which any statement is based.

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Contact

Eric Paul

Dividend Capital

(303) 228-2200

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EX-99.2

Dividend Capital Diversified Property Fund Inc. 8-K

Exhibit 99.2

TABLE OF CONTENTS
PERFORMANCE	3
FINANCIAL HIGHLIGHTS	4
NET ASSET VALUE	5
PORTFOLIO PROFILE	7
BALANCE SHEETS	8
STATEMENTS OF INCOME	9
FUNDS FROM OPERATIONS	10
RESULTS OF OPERATIONS	12
FINANCE & CAPITAL	14
REAL PROPERTIES	17
LEASING ACTIVITY	18
INVESTMENT ACTIVITY	23
DEFINITIONS	25

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Statements included in this portfolio performance and review package that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance or assumptions or forecasts related thereto) are forward looking statements. These statements are only predictions. We caution that forward looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in the forward looking statements. Forward looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.

The forward looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to: the continuing impact of high unemployment and the slow economic recovery, which is having and may continue to have a negative effect on the following, among other things, the fundamentals of our business, including overall market demand and occupancy, tenant space utilization, and rental rates; the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our properties or on an unsecured basis; general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); our ability to effectively raise and deploy proceeds from our equity offerings; risks associated with the availability and terms of debt and equity financing and refinancing and the use of debt to fund acquisitions and developments, including the risk associated with interest rates impacting the cost and/or availability of financing and refinancing; the business opportunities that may be presented to and pursued by us; changes in laws or regulations (including changes to laws governing the taxation of real estate investment trusts); changes in accounting principles, policies and guidelines applicable to real estate investment trusts; environmental, regulatory and/or safety requirements; and the availability and cost of comprehensive insurance, including coverage for terrorist acts and earthquakes. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward looking statements after the date of this supplemental package, whether as a result of new information, future events, changed circumstances or any other reason. You should review the risk factors contained in Part I, Item 1A of our 2016 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 3, 2017, and in our subsequent quarterly reports.

Please see the section titled “Definitions” at the end of this portfolio performance and review package for definitions of terms used herein.

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PERFORMANCE

Dividend Capital Diversified Property Fund Inc. is a daily NAV-based REIT and has invested in a diverse portfolio of real property and real estate related investments. As used herein, “the Portfolio,” “we,” “our” and “us” refer to Dividend Capital Diversified Property Fund Inc. and its consolidated subsidiaries and partnerships except where the context otherwise requires.

Quarter Highlights

• Total return of 0.87% for the quarter; 6.62% for the last 12 months.

• Repaid three mortgage notes for $50.8 million with a weighted average interest rate of 6.24% and entered into one mortgage note borrowing for $75.0 million with an interest rate spread of 2.25% over one-month LIBOR.

• Sold (i) one retail property in Greater Boston for $4.5 million and (ii) three industrial properties in Louisville, KY for $26.8 million.

• Percentage leased of 86.9% as of June 30, 2017.

• Paid weighted-average distribution of $0.0891/share.

Shareholder Returns						Key Statistics
	Q2 2017	Year-to-Date	1-Year	3-Year	Since Inception (9/30/12) - Annualized(5)		As of June 30, 2017
						Fair Value(1) of Investments	$2,250.0 million
						Number of Real Properties	51
						Number of Real Property Markets	19
						Total Square Feet	8.3 million
Distribution returns(3)(4)	1.20%	2.38%	4.95%	5.05%	5.16%	Number of Tenants	approximately 500
Net change in NAV, per share(4)	(0.33)%	(0.95)%	1.67%	2.33%	2.59%	Percentage Leased	86.9	%
Total return(4)(5)	0.87%	1.43%	6.62%	7.38%	7.75%	Debt to Fair Value of Investments	49.1	%

(1) As determined in accordance with our Valuation Procedures, filed as Exhibit 99.1 to our 2016 Annual Report on Form 10-K. See a discussion of some of the differences between the definition of "fair value" of our real estate assets as used in our Valuation Procedures and in this document versus GAAP values in the section titled "Definitions" beginning on page 25. For a description of key assumptions used in calculating the value of our real properties as of June 30, 2017, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of our Q2 2017 Quarterly Report on Form 10-Q.

(2) Any market for which we do not show a corresponding percentage of our total fair value comprises 1% or less of the total fair value of our real property portfolio.

(3) Represents the compounded return realized from reinvested distributions before class specific expenses. We pay our dealer manager (1) a dealer manager fee equal to 1/365th of 0.60% of our NAV per share for Class A shares and Class W shares for each day, (2) a dealer manager fee equal to 1/365th of 0.10% of our NAV per share for Class I shares for each day and (3) for Class A shares only, a distribution fee equal to 1/365th of 0.50% of our NAV per share for Class A shares for each day.

(4) Excludes the impact of up-front commissions paid with respect to certain Class A shares. We pay selling commissions on Class A shares sold in the primary offering of up to 3.0% of the public offering price per share, which may be higher or lower due to rounding. Selling commissions may be reduced or eliminated to or for the account of certain categories of purchasers.

(5) Total return represents the compound annual rate of return assuming reinvestment of all dividend distributions. Past performance is not a guarantee of future results. Q4 2012 represents the first full quarter for which we have complete NAV return data. As such, we use 9/30/12 as “inception” for the purpose of calculating cumulative returns since inception. Investors in our fixed price offering prior to NAV inception are likely to have a lower total return.

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FINANCIAL HIGHLIGHTS

Amounts in thousands, except per share information and percentages.

	As of or For the Three Months Ended															As of or For Six Months Ended
Selected Operating Data (as adjusted)	June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			June 30, 2017			June 30, 2016
Total revenue	$	50,265		$	52,739		$	53,956		$	53,493		$	52,939		$	103,004		$	108,721
Gain on sale of real property	10,352			—			2,165			2,095			—			10,352			41,400
Net income	8,415			1,827			3,357			3,318			135			10,242			48,373
Net income per share	$	0.05		$	0.01		$	0.02		$	0.02		$	0.00		$	0.06		$	0.27
Weighted average number of common shares outstanding - basic	145,288			149,891			154,807			158,688			161,209			147,577			162,581
Weighted average number of common shares outstanding - diluted	157,209			161,919			166,942			170,952			173,669			159,551			175,179
Portfolio Statistics
Operating properties	51			55			55			55			58			51			58
Square feet	8,315			8,971			8,971			8,988			9,333			8,315			9,333
Percentage leased at end of period	86.9		%	87.8		%	91.2		%	91.5		%	90.2		%	86.9		%	90.2		%
Non-GAAP Supplemental Financial Measures
Real property net operating income ("NOI") (1)	$	33,475		$	35,065		$	36,523		$	36,821		$	37,070		$	68,540		$	76,296
Funds from Operations ("FFO") per share (2)	$	0.11		$	0.12		$	0.13		$	0.14		$	0.12		$	0.24		$	0.26
Net Asset Value ("NAV") (3)
NAV per share at the end of period	$	7.50		$	7.52		$	7.57		$	7.48		$	7.37		$	7.50		$	7.37
Weighted average distributions per share	$	0.0891		$	0.0891		$	0.0892		$	0.0892		$	0.0893		$	0.1782		$	0.1785
Weighted average closing dividend yield - annualized	4.75		%	4.74		%	4.71		%	4.77		%	4.84		%	4.75		%	4.84		%
Weighted average total return for the period	0.87		%	0.55		%	2.45		%	2.59		%	1.44		%	1.43		%	1.18		%
Aggregate fund NAV at end of period	$	1,137,640		$	1,184,021		$	1,229,300		$	1,232,985		$	1,264,858		$	1,137,640		$	1,264,858
Consolidated Debt
Leverage (4)	49.1		%	47.7		%	45.9		%	45.9		%	44.4		%	49.1		%	44.4		%
Weighted average stated interest rate of total borrowings	3.3		%	3.2		%	3.4		%	3.2		%	3.6		%	3.3		%	3.6		%
Secured borrowings	$	383,852		$	360,063		$	343,470		$	388,070		$	465,292		$	383,852		$	465,292
Secured borrowings as % of total borrowings	35		%	33		%	33		%	37		%	45		%	35		%	45		%
Unsecured borrowings	$	728,000		$	735,000		$	711,000		$	668,000		$	561,000		$	728,000		$	561,000
Unsecured borrowings as % of total borrowings	65		%	67		%	67		%	63		%	55		%	65		%	55		%
Fixed rate borrowings (5)	$	479,352		$	542,593		$	653,093		$	697,785		$	835,580		$	479,352		$	835,580
Fixed rate borrowings as % of total borrowings	43		%	50		%	62		%	66		%	81		%	43		%	81		%
Floating rate borrowings	$	632,500		$	552,470		$	401,377		$	358,285		$	190,712		$	632,500		$	190,712
Floating rate borrowings as % of total borrowings	57		%	50		%	38		%	34		%	19		%	57		%	19		%
Total borrowings	$	1,111,852		$	1,095,063		$	1,054,470		$	1,056,070		$	1,026,292		$	1,111,852		$	1,026,292
Net GAAP adjustments (6)	$	(6,700	)	$	(6,618	)	$	(5,669	)	$	(5,360	)	$	(5,173	)	$	(6,700	)	$	(5,173	)
Total borrowings (GAAP Basis)	$	1,105,152		$	1,088,445		$	1,048,801		$	1,050,710		$	1,021,119		$	1,105,152		$	1,021,119

(1) NOI is a non-GAAP measure. For a reconciliation of NOI to GAAP net income, see the section titled "Results From Operations" beginning on page 12.

(2) FFO is a non-GAAP measure. For a reconciliation of FFO to GAAP net income, see the section titled “Funds From Operations” beginning on page 10.

(3) As determined in accordance with our Valuation Procedures, filed as Exhibit 99.1 to our 2016 Annual Report on Form 10-K. See a discussion of some of the differences between the definition of "fair value" of our real estate assets as used in our Valuation Procedures and in this document versus GAAP values in the section titled "Definitions" beginning on page 25. For a description of key assumptions used in calculating the value of our real properties as of June 30, 2017, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of our Q2 2017 Quarterly Report on Form 10-Q.

(4) Leverage presented represents the total principal outstanding under our total borrowings divided by the fair value of our real property and debt investments.

(5) Fixed rate borrowings presented includes floating rate borrowings that are effectively fixed by a derivative instrument such as a swap through maturity or substantially through maturity.

(6) Net GAAP adjustments include net deferred issuance costs and mark-to-market adjustments on assumed debt. These items are included in mortgage notes and unsecured borrowings in our condensed consolidated balance sheets in accordance with GAAP.

Page | 4

NET ASSET VALUE

The following table sets forth the components of NAV for the Portfolio as of the end of each of the five quarters ending June 30, 2017, as determined in accordance with our valuation procedures. For information about the valuation procedures and key assumptions used in these calculations, please refer to our Annual Report on Form 10-K or Quarterly Report on Form 10-Q for the applicable period. As used below, “Fund Interests” means our Class E shares, Class A shares, Class W shares, and Class I shares, along with the OP Units held by third parties, and “Aggregate Fund NAV” means the NAV of all of the Fund Interests (amounts in thousands, except per share information).

	As of
	June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016
Real properties:
Office	$	1,187,550		$	1,186,100		$	1,187,600		$	1,185,850		$	1,192,700
Industrial	54,850			81,050			81,750			80,850			85,550
Retail	1,007,600			1,013,300			1,012,850			1,020,750			1,020,050
Total real properties	2,250,000			2,280,450			2,282,200			2,287,450			2,298,300
Debt-related investments	14,941			15,076			15,209			15,340			15,469
Total investments	2,264,941			2,295,526			2,297,409			2,302,790			2,313,769
Cash and other assets, net of other liabilities	(15,449		)	(13,843		)	(10,051		)	(10,109		)	(19,238		)
Debt obligations	(1,111,852		)	(1,095,063		)	(1,054,470		)	(1,056,070		)	(1,026,292		)
Outside investors' interests	—			(2,599		)	(3,588		)	(3,626		)	(3,381		)
Aggregate Fund NAV	$	1,137,640		$	1,184,021		$	1,229,300		$	1,232,985		$	1,264,858
Total Fund Interests outstanding	151,738			157,409			162,396			164,930			171,525
NAV per Fund Interest	$	7.50		$	7.52		$	7.57		$	7.48		$	7.37

Page | 5

NET ASSET VALUE (continued)

The following table sets forth the quarterly changes to the components of NAV for the Portfolio, for each of the most recent four quarters and for the six and twelve month period ended June 30, 2017 (amounts in thousands, except per share information):

	Three Months Ended															Six Months Ended June 30, 2017
	June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			Previous Four Quarters
NAV as of beginning of period	$	1,184,021		$	1,229,300		$	1,232,985		$	1,264,858		$	1,264,858		$	1,229,300
Fund level changes to NAV
Realized/unrealized (losses) gains on net assets	(6,011		)	(9,067		)	12,163			13,206			10,291			(15,078		)
Income accrual	19,923			19,564			22,407			23,078			84,972			39,487
Dividend accrual	(14,020		)	(14,448		)	(14,901		)	(15,275		)	(58,644		)	(28,468		)
Advisory fee	(3,431		)	(3,468		)	(3,624		)	(3,665		)	(14,188		)	(6,899		)
Performance-based fee	—			(1		)	(94		)	—			(95		)	(1		)
Class specific changes to NAV
Dealer Manager fee	(116		)	(112		)	(107		)	(99		)	(434		)	(228		)
Distribution fee	(19		)	(19		)	(18		)	(18		)	(74		)	(38		)
NAV as of end of period before share/unit sale/redemption activity	$	1,180,347		$	1,221,749		$	1,248,811		$	1,282,085		$	1,286,686		$	1,218,075
Dollar/unit sale/redemption activity
Amount sold	11,535			11,210			44,371			7,850			74,966			22,745
Amount redeemed	(54,242		)	(48,938		)	(63,882		)	(56,950		)	(224,012		)	(103,180		)
NAV as of end of period	$	1,137,640		$	1,184,021		$	1,229,300		$	1,232,985		$	1,137,640		$	1,137,640
Shares outstanding beginning of period	157,409			162,396			164,930			171,525			171,525			162,396
Shares/units sold	1,535			1,484			5,925			1,061			10,005			3,019
Shares/units redeemed	(7,206		)	(6,471		)	(8,459		)	(7,656		)	(29,792		)	(13,677		)
Shares outstanding end of period	151,738			157,409			162,396			164,930			151,738			151,738
NAV per share as of beginning of period	$	7.52		$	7.57		$	7.48		$	7.37		$	7.37		$	7.57
Change in NAV per share	(0.02		)	(0.05		)	0.09			0.11			0.13			(0.07		)
NAV per share as of end of period	$	7.50		$	7.52		$	7.57		$	7.48		$	7.50		$	7.50

Page | 6

PORTFOLIO PROFILE

As of June 30, 2017, our real property investments were geographically diversified across 19 markets throughout the United States. The following table presents information about the fair value of our real property portfolio as of June 30, 2017 and about the operating results for the three and trailing twelve months ended June 30, 2017 (dollar and square footage amount in thousands).

	Office			Industrial			Retail			Total
As of June 30, 2017:
Number of investments	16			2			33			51
Square footage	3,404			1,173			3,738			8,315
Percentage leased at period end	81.3		%	75.3		%	95.7		%	86.9		%
Fair value (1)	$	1,187,550		$	54,850		$	1,007,600		$	2,250,000
% of total Fair Value	52.8		%	2.4		%	44.8		%	100.0		%
For the three months ended June 30, 2017:
Rental revenue	$	27,624		$	1,330		$	21,082		$	50,036
NOI (2)	16,224			975			16,276			33,475
% of total NOI	48.5		%	2.9		%	48.6		%	100.0		%
NOI - cash basis (3)	$	16,584		$	992		$	15,433		$	33,009
For the trailing twelve months ended June 30, 2017:
Rental revenue	$	118,892		$	5,729		$	84,904		$	209,525
NOI (2)	74,694			3,922			63,268			141,884
% of total NOI	52.6		%	2.8		%	44.6		%	100.0		%
NOI - cash basis (3)	$	77,984		$	4,045		$	59,798		$	141,827

(1) As determined in accordance with our Valuation Procedures, filed as Exhibit 99.1 to our 2016 Annual Report on Form 10-K. See a discussion of some of the differences between the definition of "fair value" of our real estate assets as used in our Valuation Procedures and in this document versus GAAP values in the section titled "Definitions" beginning on page 25. For a description of key assumptions used in calculating the value of our real properties as of June 30, 2017, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of our Q2 2017 Quarterly Report on Form 10-Q.

(2) NOI is a non-GAAP measure. For a reconciliation of NOI to GAAP net income, see the section titled "Results From Operations" beginning on page 12.

(3) NOI - cash basis is a non-GAAP measure. For a reconciliation of NOI - Cash Basis to NOI and to GAAP net income, see the section titled "Results From Operations" beginning on page 12.

Page | 7

BALANCE SHEETS

The following table presents our consolidated balance sheets, as adjusted, as of the end of each of the five quarters ended June 30, 2017 (dollar amounts in thousands):

	As of
	June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016
ASSETS
Investments in real property	$	2,178,358		$	2,207,409		$	2,204,322		$	2,201,127		$	2,240,520
Accumulated depreciation and amortization	(515,840		)	(511,532		)	(492,911		)	(473,211		)	(469,341		)
Total net investments in real property	1,662,518			1,695,877			1,711,411			1,727,916			1,771,179
Debt-related investments, net	14,941			15,076			15,209			15,340			15,469
Total net investments	1,677,459			1,710,953			1,726,620			1,743,256			1,786,648
Cash and cash equivalents	5,362			10,894			13,864			34,403			17,088
Restricted cash	7,160			8,765			7,282			7,836			17,219
Other assets, net	35,297			36,947			35,962			36,166			33,344
Total Assets	$	1,725,278		$	1,767,559		$	1,783,728		$	1,821,661		$	1,854,299
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes	$	380,934		$	357,565		$	342,247		$	386,861		$	464,564
Unsecured borrowings	724,218			730,880			706,554			663,849			556,555
Intangible lease liabilities, net	56,637			58,119			59,545			61,357			62,909
Other liabilities	57,812			62,635			67,291			81,968			85,371
Total Liabilities	1,219,601			1,209,199			1,175,637			1,194,035			1,169,399
Equity:
Stockholders' equity:
Common stock	1,399			1,458			1,506			1,531			1,595
Additional paid-in capital	1,280,621			1,324,200			1,361,638			1,383,191			1,430,673
Distributions in excess of earnings	(857,792		)	(851,636		)	(839,896		)	(829,162		)	(817,920		)
Accumulated other comprehensive loss	(5,550		)	(4,926		)	(6,905		)	(20,166		)	(22,848		)
Total stockholders' equity	418,678			469,096			516,343			535,394			591,500
Noncontrolling interests	86,999			89,264			91,748			92,232			93,400
Total Equity	505,677			558,360			608,091			627,626			684,900
Total Liabilities and Equity	$	1,725,278		$	1,767,559		$	1,783,728		$	1,821,661		$	1,854,299

Page | 8

STATEMENTS OF INCOME

The following table presents our condensed consolidated statements of income, as adjusted, for each of the five quarters ended June 30, 2017, and for the six months ended June 30, 2017 and 2016 (amounts in thousands, except per share data):

	Three Months Ended															Six Months Ended
	June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			June 30, 2017			June 30, 2016
REVENUE:
Rental revenue	$	50,036		$	52,508		$	53,723		$	53,258		$	52,702		$	102,544		$	108,246
Debt-related income	229			231			233			235			237			460			475
Total Revenue	50,265			52,739			53,956			53,493			52,939			103,004			108,721
EXPENSES:
Rental expense	16,561			17,443			17,200			16,437			15,632			34,004			31,950
Real estate depreciation and amortization expense	18,798			17,936			20,083			19,989			20,198			36,734			40,034
General and administrative expenses	2,024			2,250			2,257			2,234			2,338			4,274			4,958
Advisory fees, related party	3,451			3,490			3,740			3,681			3,671			6,941			7,436
Acquisition-related expenses	—			—			6			136			474			—			525
Impairment of real estate property	1,116			—			—			2,090			—			1,116			587
Total Operating Expenses	41,950			41,119			43,286			44,567			42,313			83,069			85,490
OTHER INCOME (EXPENSES):
Other income and (expense)	(89		)	(109		)	(90		)	2,308			(69		)	(198		)	(11		)
Interest expense	(10,163		)	(9,684		)	(9,388		)	(10,011		)	(10,422		)	(19,847		)	(21,383		)
Gain on extinguishment of debt and financing commitments	—			—			—			—			—			—			5,136
Gain on sale of real property	10,352			—			2,165			2,095			—			10,352			41,400
Net income	8,415			1,827			3,357			3,318			135			10,242			48,373
Net income attributable to noncontrolling interests	(1,610		)	(166		)	(245		)	(353		)	(18		)	(1,776		)	(4,474		)
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	6,805		$	1,661		$	3,112		$	2,965		$	117		$	8,466		$	43,899
NET INCOME PER BASIC AND DILUTED COMMON SHARE	$	0.05		$	0.01		$	0.02		$	0.02		$	0.00		$	0.06		$	0.27
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic	145,288			149,891			154,807			158,688			161,209			147,577			162,581
Diluted	157,209			161,919			166,942			170,952			173,669			159,551			175,179
Weighted average distributions declared per common share	$	0.0891		$	0.0891		$	0.0892		$	0.0892		$	0.0893		$	0.1782		$	0.1785

Page | 9

FUNDS FROM OPERATIONS

NAREIT-Defined Funds From Operations (“FFO”) is a non-GAAP measure. The following tables present a reconciliation of FFO to GAAP net income attributable to common stockholders for each of the five quarters ended June 30, 2017, and for the six months ended June 30, 2017 and 2016 (amounts in thousands except for per share amounts and percentages):

	Three Months Ended															Six Months Ended
	June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			June 30, 2017			June 30, 2016
Reconciliation of net earnings to FFO:
Net income attributable to common stockholders	$	6,805		$	1,661		$	3,112		$	2,965		$	117		$	8,466		$	43,899
Add (deduct) NAREIT-defined adjustments:
Depreciation and amortization expense	18,798			17,936			20,083			19,989			20,198			36,734			40,034
Gain on sale of real property	(10,352		)	—			(2,165		)	(2,095		)	—			(10,352		)	(41,400		)
Impairment of real estate property	1,116			—			—			2,090			—			1,116			587
Noncontrolling interests' share of adjustments	200			(1,361		)	(1,331		)	(1,366		)	(1,481		)	(1,161		)	(104		)
FFO attributable to common shares-basic	16,567			18,236			19,699			21,583			18,834			34,803			43,016
FFO attributable to dilutive OP units	1,360			1,463			1,544			1,668			1,456			2,823			3,334
FFO attributable to common shares-diluted	$	17,927		$	19,699		$	21,243		$	23,251		$	20,290		$	37,626		$	46,350
FFO per share-basic and diluted	$	0.11		$	0.12		$	0.13		$	0.14		$	0.12		$	0.24		$	0.26
FFO payout ratio	78		%	73		%	70		%	66		%	76		%	76		%	67		%
Weighted average number of shares outstanding
Basic	145,288			149,891			154,807			158,688			161,209			147,577			162,581
Diluted	157,209			161,919			166,942			170,952			173,669			159,551			175,179

Page | 10

FUNDS FROM OPERATIONS (continued)

The following table presents certain other supplemental information for each of the five quarters ended June 30, 2017, and for the six months ended June 30, 2017 and 2016 (amounts in thousands):

	Three Months Ended															Six Months Ended
	June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			June 30, 2017			June 30, 2016
Other Supplemental Information
Capital expenditures summary:
Recurring capital expenditures (1)	$	5,952		$	2,801		$	8,039		$	4,165		$	8,212		$	8,753		$	14,492
Non-recurring capital expenditures	586			469			1,078			748			694			1,055			1,682
Total capital expenditures	6,538			3,270			9,117			4,913			8,906			9,808			16,174
Other non-cash adjustments:
Straight-line rent decrease to rental revenue	238			117			522			296			205			355			446
Amortization of above- and below- market rent (increase) decrease to rental revenue	(710		)	(559		)	143			(127		)	(283		)	(1,269		)	(551		)
Amortization of loan costs and hedges - increase to interest expense	1,074			1,032			873			909			910			2,106			1,968
Amortization of mark-to-market adjustments on borrowings - decrease to interest expense	(33		)	(33		)	(33		)	(32		)	(32		)	(66		)	(613		)
Total other non-cash adjustments	$	569		$	557		$	1,505		$	1,046		$	800		$	1,126		$	1,250

(1) Recurring capital expenditures include lease incentives. Unlike other capital expenditures, we record lease incentives as other assets in our balance sheet and we classify payments for lease incentives as cash used in operating activities in our statement of cash flows.

Page | 11

RESULTS FROM OPERATIONS

Net operating income (“NOI”) and NOI - cash basis are non-GAAP measures. See page 13 for a reconciliation of GAAP net income attributable to common stockholders to NOI and NOI - cash basis. The following tables present revenue and NOI of our three operating segments for each of the five quarters ending June 30, 2017, and for the six months ended June 30, 2017 and 2016. Our same store portfolio includes all operating properties owned for the entirety of all periods presented and totals 50 properties, comprising approximately 8.2 million square feet or 99.0% of our total portfolio when measured by square feet (amounts in thousands):

	Three Months Ended										Six Months Ended
	June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016		June 30, 2016		June 30, 2017		June 30, 2016
Revenue:
Same store real property:
Office (1)	$	27,624	$	29,439	$	30,743	$	31,207	$	30,983	$	57,063	$	61,764
Industrial	876		1,026		955		967		945		1,902		2,026
Retail	19,666		19,989		20,331		19,402		19,444		39,655		38,921
Total same store real property revenue	48,166		50,454		52,029		51,576		51,372		98,620		102,711
2016/2017 Acquisitions/Dispositions	1,870		2,054		1,694		1,682		1,330		3,924		5,535
Total	$	50,036	$	52,508	$	53,723	$	53,258	$	52,702	$	102,544	$	108,246
NOI:
Same store real property:
Office (1)	$	16,221	$	18,307	$	19,591	$	20,665	$	21,020	$	34,528	$	41,833
Industrial	629		572		752		629		674		1,201		1,492
Retail	15,278		14,854		15,180		14,263		14,601		30,132		29,022
Total same store real property NOI	32,128		33,733		35,523		35,557		36,295		65,861		72,347
2016/2017 Acquisitions/Dispositions	1,347		1,332		1,000		1,264		775		2,679		3,949
Total	$	33,475	$	35,065	$	36,523	$	36,821	$	37,070	$	68,540	$	76,296
NOI - cash basis:
Same store real property:
Office (1)	$	16,581	$	18,681	$	21,102	$	21,711	$	21,864	$	35,262	$	43,343
Industrial	652		595		767		639		675		1,247		1,494
Retail	14,518		14,123		14,385		13,404		13,689		28,641		27,310
Total same store real property NOI - cash basis	31,751		33,399		36,254		35,754		36,228		65,150		72,147
2016/2017 Acquisitions/Dispositions	1,258		1,229		941		1,241		769		2,487		4,054
Total	$	33,009	$	34,628	$	37,195	$	36,995	$	36,997	$	67,637	$	76,201

(1) In January 2017, our lease with Sybase Inc. ("Sybase"), our second largest tenant based on annualized base rent as of December 31, 2016, was terminated which had an adverse impact on our results from operations for three and six months ended June 30, 2017. Sybase had leased our entire 405,000 square foot office property in East Bay, CA ("Park Place") and, as of June 30, 2017, we have not leased any portion of Park Place to a replacement tenant. Please see the table below for revenue, NOI and NOI - cash basis for our same store office portfolio excluding Park Place for each of the five quarters ending June 30, 2017, and for the six months ended June 30, 2017 and 2016.

	Three Months Ended										Six Months Ended
	June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016		June 30, 2016		June 30, 2017		June 30, 2016
Same store office portfolio excluding Sybase:
Revenue	$	27,750	$	27,879	$	27,416	$	27,678	$	27,451	$	55,629	$	54,700
NOI	17,067		17,357		16,525		17,154		17,542		34,424		34,834
NOI - cash basis	17,427		17,352		16,689		17,055		17,246		34,779		34,062

Page | 12

RESULTS FROM OPERATIONS (continued)

The following tables present a reconciliation of GAAP net income attributable to common stockholders to NOI and NOI - Cash Basis of our three operating segments for each of the five quarters ending June 30, 2017, and for the six months ended June 30, 2017 and 2016 (amounts in thousands):

	Three Months Ended															Six Months Ended
	June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			June 30, 2017			June 30, 2016
Net income attributable to common stockholders	$	6,805		$	1,661		$	3,112		$	2,965		$	117		$	8,466		$	43,899
Debt-related income	(229		)	(231		)	(233		)	(235		)	(237		)	(460		)	(475		)
Real estate depreciation and amortization expense	18,798			17,936			20,083			19,989			20,198			36,734			40,034
General and administrative expenses	2,024			2,250			2,257			2,234			2,338			4,274			4,958
Advisory fees, related party	3,451			3,490			3,740			3,681			3,671			6,941			7,436
Acquisition-related expenses	—			—			6			136			474			—			525
Impairment of real estate property	1,116			—			—			2,090			—			1,116			587
Other (income) and expense	89			109			90			(2,308		)	69			198			11
Interest expense	10,163			9,684			9,388			10,011			10,422			19,847			21,383
Gain on extinguishment of debt and financing commitments	—			—			—			—			—			—			(5,136		)
Gain on sale of real property	(10,352		)	—			(2,165		)	(2,095		)	—			(10,352		)	(41,400		)
Net income attributable to noncontrolling interests	1,610			166			245			353			18			1,776			4,474
NOI	$	33,475		$	35,065		$	36,523		$	36,821		$	37,070		$	68,540		$	76,296
Net amortization of above- and below-market lease assets and liabilities, and other non-cash adjustments to rental revenue	(704		)	(554		)	150			(122		)	(278		)	(1,258		)	(541		)
Straight line rent	238			117			522			296			205			355			446
NOI - cash basis	$	33,009		$	34,628		$	37,195		$	36,995		$	36,997		$	67,637		$	76,201

The following tables present details regarding our capital expenditures for each of the five quarters ending June 30, 2017, and for the six months ended June 30, 2017 and 2016 (amounts in thousands):

	Three Months Ended										Six Months Ended
	June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016		June 30, 2016		June 30, 2017		June 30, 2016
Recurring capital expenditures:
Land and building improvements	$	3,276	$	1,108	$	5,740	$	1,949	$	1,729	$	4,384	$	3,023
Tenant improvements	1,438		1,046		1,267		1,680		1,459		2,484		5,559
Leasing costs (1)	1,238		647		1,032		536		5,024		1,885		5,910
Total recurring capital expenditures	$	5,952	$	2,801	$	8,039	$	4,165	$	8,212	$	8,753	$	14,492
Non-recurring capital expenditures:
Land and building improvements	$	266	$	292	$	782	$	553	$	374	$	558	$	678
Tenant improvements	64		93		165		111		256		157		785
Leasing costs	256		84		131		84		64		340		219
Total non-recurring capital expenditures	$	586	$	469	$	1,078	$	748	$	694	$	1,055	$	1,682

(1) Recurring leasing costs include lease incentives. Unlike other capital expenditures, we record lease incentives as other assets in our balance sheet and we classify payments for lease incentives as cash used in operating activities in our statement of cash flows.

Page | 13

FINANCE & CAPITAL

The following table describes certain information about our capital structure. Amounts reported as financing capital represent the total principal outstanding under our total borrowings. Amounts reported as equity capital are presented based on the NAV as of June 30, 2017 (shares and dollar amounts other than price per share / unit in thousands).

FINANCING:	As of June 30, 2017
Mortgage notes	$	383,852
Unsecured line of credit	253,000
Unsecured term loans	475,000
Total Financing (1)	$	1,111,852

EQUITY:	Shares / Units	Percentage of Aggregate Shares and Units Outstanding		NAV Per Share / Unit		Value
Class E Common Stock	100,877	66.5	%	$	7.50	$	756,313
Class A Common Stock	2,058	1.4	%	7.50		15,428
Class W Common Stock	2,486	1.6	%	7.50		18,640
Class I Common Stock (2)	34,427	22.7	%	7.50		258,112
Class E OP Units	11,890	7.8	%	7.50		89,147
Total/Weighted Average	151,738	100.0	%	$	7.50	$	1,137,640
Joint venture partners' noncontrolling interests						—
Total Equity						1,137,640
TOTAL CAPITALIZATION						$	2,249,492

(1) For a reconciliation of the total outstanding principal balance under our total borrowings to total borrowings on a GAAP basis see page 15.

(2) Amounts reported do not include approximately 66,000 restricted stock units granted to the Advisor that remain unvested as of June 30, 2017.

Page | 14

FINANCE & CAPITAL (continued)

The following table presents a summary of our borrowings as of June 30, 2017 (dollar amounts in thousands):

	Outstanding Principal Balance			Weighted Average Stated Interest Rate	Fair Value  of Real Properties  Securing Borrowings (1)
Fixed-rate mortgages (2)	$	129,352		4.0%	$	252,300
Floating-rate mortgages (3)	254,500			3.2%	486,450
Total secured borrowings	383,852			3.5%	738,750
Line of credit	253,000			2.9%	N/A
Term loans (4)	475,000			3.4%	N/A
Total unsecured borrowings	728,000			3.3%	N/A
Total borrowings	$	1,111,852		3.3%	N/A
Less: net debt issuance costs	(7,260		)
Add: mark-to-market adjustment on assumed debt	560
Total borrowings (GAAP basis)	$	1,105,152

(1) Fair value of real properties was determined in accordance with our Valuation Procedures, filed as Exhibit 99.1 to our 2016 Annual Report on Form 10-K. See a discussion of some of the differences between the definition of "fair value" of our real estate assets as used in our Valuation Procedures and in this document versus GAAP values in the section titled "Definitions" beginning on page 25. For a description of key assumptions used in calculating the value of our real properties as of June 30, 2017, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of our Q2 2017 Quarterly Report on Form 10-Q.

(2) As of June 30, 2017, fixed-rate mortgages included one floating rate mortgage note subject to an interest rate spread of 1.60% over one-month LIBOR, which we have effectively fixed using an interest rate swap at 3.051% for the term of the borrowing.

(3) As of June 30, 2017, our floating rate mortgage notes were subject to a weighted average interest rate spread of 2.13% over one-month LIBOR.

(4) $350.0 million of our unsecured floating rate term loans are effectively fixed by the use of fixed-for-floating rate swap instruments as of June 30, 2017. The stated interest rate disclosed above includes the impact of these swaps.

The following table presents a summary of our covenants and our actual results for each of the five quarters ended June 30, 2017, calculated in accordance with the terms of our credit facilities:

Portfolio-Level Covenants:	Covenant	June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016		June 30, 2016
Leverage	< 60%	52.3	%	50.8	%	47.5	%	46.5	%	44.8	%
Fixed Charge Coverage	> 1.50	3.0		3.3		3.3		3.0		2.7
Secured Indebtedness	< 55%	18.1	%	16.7	%	15.5	%	17.0	%	20.2	%
Unencumbered Pool Covenants:
Leverage	< 60%	51.2	%	50.7	%	45.5	%	41.4	%	38.8	%
Unsecured Interest Coverage	>2.0	4.2		5.2		6.8		7.8		6.9

Page | 15

FINANCE & CAPITAL (continued)

The following table presents a detailed analysis of our borrowings outstanding as of June 30, 2017 (dollar amounts in thousands):

Borrowings	Principal Balance			Secured / Unsecured	Maturity Date	Extension Options	% of Total Borrowings		Fixed or Floating Interest Rate	Current Interest Rate
Bank of America Term Loan (1)	$	275,000		Unsecured	1/31/2018	2 - 1 Year	24.7	%	Floating	3.09	%
Line of Credit	253,000			Unsecured	1/31/2019	1 - 1 Year	22.8	%	Floating	2.90	%
Centerton Square (2)	75,000			Secured	7/10/2019	2 - 1 Year	6.7	%	Floating	3.33	%
3 Second Street (3)	127,000			Secured	1/10/2020	2 - 1 Year	11.4	%	Floating	3.38	%
Shenandoah	10,362			Secured	9/1/2021	None	0.9	%	Fixed	4.84	%
Wells Fargo Term Loan (1)	200,000			Unsecured	2/27/2022	None	18.0	%	Fixed	3.94	%
Norwell	4,079			Secured	10/1/2022	None	0.5	%	Fixed	6.76	%
Preston Sherry Plaza (4)	33,000			Secured	3/1/2023	None	3.0	%	Fixed	3.05	%
1300 Connecticut (5)	52,500			Secured	8/5/2023	None	4.7	%	Floating	2.70	%
270 Center (f/k/a Greater DC Retail Center)	70,000			Secured	12/1/2025	None	6.3	%	Fixed	3.80	%
Harwich	4,877			Secured	9/1/2028	None	0.4	%	Fixed	5.24	%
New Bedford	7,034			Secured	12/1/2029	None	0.6	%	Fixed	5.91	%
Total borrowings	1,111,852						100.0	%		3.33	%
Add: mark-to-market adjustment on assumed debt	560
Less: net debt issuance costs	(7,260		)
Total Borrowings (GAAP basis)	$	1,105,152

(1) $350.0 million of our term loan and line of credit borrowings are effectively fixed by the use of fixed-for-floating rate swap instruments as of June 30, 2017. The stated interest rates disclosed above include the impact of these swaps.

(2) The Centerton Square term loan was subject to an interest rate spread of 2.25% over one-month LIBOR as of June 30, 2017. However, in conjunction with this borrowing, we entered into an interest rate protection agreement with a LIBOR strike rate of 3.00%.

(3) The 3 Second Street term loan was subject to an interest rate spread of 2.25% over one-month LIBOR as of June 30, 2017. However, in conjunction with this borrowing, we entered into an interest rate protection agreement with a LIBOR strike rate of 3.00%.

(4) The Preston Sherry Plaza term loan was subject to an interest rate spread of 1.60% over one-month LIBOR. However, we have effectively fixed the interest rate of the borrowing using an interest rate swap at 3.051% for the term of the borrowing as of June 30, 2017.

(5) As of June 30, 2017, the 1300 Connecticut term loan was subject to an interest rate spread of 1.65% over one-month LIBOR. However, we entered into an interest rate swap which will effectively fix the interest rate of the borrowing at 2.852% from July 1, 2018 to July 1, 2021.

Page | 16

REAL PROPERTIES

The following table describes our operating property portfolio as of June 30, 2017 (dollar and square feet amounts in thousands):

Market	Number of Properties	Gross Investment Amount		% of Gross Investment Amount		Net Rentable Square Feet	% of Total Net Rentable Square Feet		% Leased (1)		Secured Indebtedness (2)
Office Properties:
Metro New York (f/k/a Northern New Jersey)	1	$	231,352	10.6	%	594	7.1	%	100.0	%	$	127,000
Austin, TX	3	155,738		7.1	%	585	7.0	%	91.8	%	—
East Bay, CA	1	146,666		6.7	%	405	4.9	%	—	%	—
San Francisco, CA	1	118,402		5.4	%	263	3.2	%	83.7	%	—
Denver, CO	1	83,408		3.8	%	262	3.1	%	78.7	%	—
South Florida	2	82,826		3.8	%	363	4.4	%	85.0	%	—
Washington, DC	1	70,743		3.2	%	126	1.5	%	99.1	%	52,500
Princeton, NJ	1	51,326		2.4	%	167	2.0	%	100.0	%	—
Philadelphia, PA	1	47,281		2.2	%	173	2.1	%	89.8	%	—
Silicon Valley, CA	1	42,781		2.0	%	143	1.7	%	100.0	%	—
Dallas, TX	1	38,353		1.8	%	155	1.9	%	92.3	%	33,000
Minneapolis/St Paul, MN	1	29,538		1.4	%	107	1.3	%	100.0	%	—
Fayetteville, AR	1	11,695		0.5	%	61	0.7	%	100.0	%	—
Total/Weighted Average Office: 13 markets with average annual rent of $32.14 per sq. ft.	16	1,110,109		50.9	%	3,404	40.9	%	81.3	%	212,500
Industrial Properties:
Dallas, TX	1	35,854		1.6	%	446	5.4	%	35.1	%	—
Central Kentucky	1	30,840		1.4	%	727	8.7	%	100.0	%	—
Total/Weighted Average Industrial: two markets with average annual rent of $3.89 per sq. ft.	2	66,694		3.0	%	1,173	14.1	%	75.3	%	—
Retail Properties:
Greater Boston	24	536,161		24.7	%	2,172	26.1	%	96.3	%	15,990
South Florida	2	106,378		4.9	%	206	2.5	%	94.6	%	10,362
Philadelphia, PA	1	105,466		4.8	%	426	5.1	%	100.0	%	75,000
Washington, DC	1	62,867		2.9	%	233	2.8	%	100.0	%	70,000
Metro New York (f/k/a Northern New Jersey)	1	59,006		2.7	%	223	2.7	%	94.5	%	—
Raleigh, NC	1	45,742		2.1	%	143	1.8	%	100.0	%	—
Tulsa, OK	1	34,038		1.6	%	101	1.2	%	100.0	%	—
San Antonio, TX	1	32,271		1.5	%	161	1.9	%	89.6	%	—
Jacksonville, FL	1	19,626		0.9	%	73	0.9	%	48.0	%	—
Total/Weighted Average Retail: nine markets with average annual rent of $17.90 per sq. ft.	33	1,001,555		46.1	%	3,738	45.0	%	95.7	%	171,352
Grand Total/Weighted Average	51	$	2,178,358	100.0	%	8,315	100.0	%	86.9	%	$	383,852

(1) Based on executed leases as of June 30, 2017.

(2) Secured indebtedness represents the principal balance outstanding and does not include our mark-to-market adjustment on debt or net debt issuance costs.

Page | 17

LEASING ACTIVITY

The following graphs highlight our total portfolio and same store portfolio percentage leased at the end of each of the five quarters ended June 30, 2017, by segment and in total:

Page | 18

LEASING ACTIVITY (continued)

As of June 30, 2017, the weighted average remaining term of our leases was approximately 4.4 years, based on annualized base rent, and 4.8 years, based on leased square footage. The following table presents our lease expirations, by segment and in total, as of June 30, 2017 (dollars and square feet in thousands):

	Total						Office				Industrial				Retail
Year	Number of Leases Expiring	Annualized Base Rent		% of Total Annualized Base Rent		Square Feet	Number of Leases Expiring	Annualized Base Rent		Square Feet	Number of Leases Expiring	Annualized Base Rent		Square Feet	Number of Leases Expiring	Annualized Base Rent		Square Feet
2017 (1)	44	$	13,832	9.1	%	442	20	$	11,875	320	—	$	—	—	24	$	1,957	122
2018	110	10,538		7.0	%	454	59	6,602		267	—	—		—	51	3,936		187
2019	107	24,885		16.4	%	1,122	53	14,721		467	1	1,131		156	53	9,033		499
2020	116	24,412		16.1	%	1,117	43	10,206		404	—	—		—	73	14,206		713
2021	63	16,384		10.8	%	1,260	24	8,109		262	1	2,310		727	38	5,965		271
2022	63	12,803		8.5	%	690	22	5,533		202	—	—		—	41	7,270		488
2023	43	17,604		11.6	%	690	19	12,747		422	—	—		—	24	4,857		268
2024	26	5,364		3.5	%	335	7	2,180		100	—	—		—	19	3,184		235
2025	17	4,029		2.7	%	149	8	2,511		86	—	—		—	9	1,518		63
2026	17	3,241		2.1	%	182	6	1,203		31	—	—		—	11	2,038		151
Thereafter	40	18,374		12.2	%	822	9	8,273		215	—	—		—	31	10,101		607
Total	646	$	151,466	100.0	%	7,263	270	$	83,960	2,776	2	$	3,441	883	374	$	64,065	3,604

(1) Includes 5 office leases and 6 retail lease with combined annualized base rent of approximately $319,000 that are on a month-to-month basis. In January 2017, our lease with Sybase Inc. ("Sybase"), our second largest tenant as of December 31, 2016 based upon annualized base rent, was terminated and is no longer included in the above table.

Page | 19

LEASING ACTIVITY (continued)

The following table presents our top 10 tenants by annualized base rent and their related industry sector, as of June 30, 2017 (dollars and square feet in thousands):

	Tenant	Locations	Industry Sector	Annualized Base Rent(1)		% of Total Annualized Base Rent		Square Feet	% of Occupied Square Feet
1	Charles Schwab & Co, Inc (2)	2	Securities, Commodities, Fin. Inv./Rel. Activities	$	23,646	15.6	%	602	8.3	%
2	Stop & Shop	14	Food and Beverage Stores	14,125		9.3	%	853	11.7	%
3	Novo Nordisk	1	Chemical Manufacturing	4,721		3.1	%	167	2.3	%
4	Seton Health Care	1	Hospitals	4,339		2.9	%	156	2.1	%
5	Shaw's Supermarket	4	Food and Beverage Stores	4,055		2.7	%	240	3.3	%
6	I.A.M. National Pension Fund	1	Funds, Trusts and Other Financial Vehicles	3,114		2.1	%	63	0.9	%
7	TJX Companies	7	Clothing and Clothing Accessories Stores	3,012		2.0	%	319	4.4	%
8	Alliant Techsystems, Inc.	1	Fabricated Metal Product Manufacturing	2,495		1.6	%	107	1.5	%
9	Home Depot	1	Building Material and Garden Equipment and Supplies Dealers	2,469		1.6	%	102	1.4	%
10	Amazon.com	1	Non-Store Retailers	2,310		1.5	%	727	10.0	%
	Total	33		$	64,286	42.4	%	3,336	45.9	%

(1) Annualized base rent represents the annualized monthly base rent of executed leases as of June 30, 2017.

(2) The amount presented for Charles Schwab & Co, Inc. ("Schwab") reflects the total annualized base rent for our two leases in place with Schwab as of June 30, 2017. One of these leases, which expires in September 2017, entails the lease of all 594,000 square feet of our 3 Second Street office property and accounts for $23.5 million or 15.5% of our annualized base rent as of June 30, 2017. We do not expect Schwab to renew this lease. Schwab has subleased 100% of 3 Second Street to 25 sub-tenants through September 2017. We have executed leases directly with 11 of these subtenants that comprise 368,000 square feet or 62% of 3 Second Street that effectively extend their leases beyond the Schwab lease expiration. These direct leases will expire between September 2020 and September 2032.

Page | 20

The top tenant in the table on the previous page comprises 15.6% of annualized base rent as of June 30, 2017. However, due to the near-term expiration of the Schwab lease at 3 Second Street, Schwab is no longer in the top 20 tenants based on future minimum rental revenue, comprising less than 1% of our total future minimum rental revenue as of June 30, 2017. The following table presents our top 10 tenants by future minimum rental revenue and their related industry sector, as of June 30, 2017 (dollars and square feet in thousands):

	Tenant	Locations	Industry Sector (1)	Future Minimum Rental Revenue		% of Total Future Minimum Rental Revenue		Square  Feet	% of Total Portfolio Square Feet
1	Stop & Shop	14	Food and Beverage Stores	$	67,806	9.0	%	853	11.2	%
2	Mizuho Bank Ltd.	1	Credit Intermediation and Related Activities	65,322		8.6	%	107	1.4	%
3	Shaw's Supermarket	4	Food and Beverage Stores	42,283		5.6	%	240	3.1	%
4	WeWork LLC	1	Rental and Leasing Services	34,934		4.6	%	53	0.7	%
5	Novo Nordisk	1	Chemical Manufacturing	29,393		2.0	%	167	1.4	%
6	Alliant Techsystems, Inc	1	Fabricated Metal Product Manufacturing	15,485		3.9	%	107	2.2	%
7	CVS	8	Ambulatory Health Care Services	15,043		2.0	%	86	1.4	%
8	Citco Fund Services	1	Funds, Trusts and Other Financial Vehicles	14,853		2.0	%	104	1.1	%
9	TJX Companies	7	Clothing and Clothing Accessories Stores	14,572		1.9	%	319	4.2	%
10	Walgreen Co.	2	Health and Personal Care Services	12,884		1.7	%	31	0.4	%
	Total	40		$	312,575	41.3	%	2,067	27.1	%

(1) Industry sector based upon the North American Industry Classification System.

Page | 21

LEASING ACTIVITY (continued)

The following series of tables details leasing activity during the four quarters ended June 30, 2017:

Quarter	Number of Leases Signed	Gross Leasable Area ("GLA") Signed	Weighted Average Rent Per Sq. Ft.		Weighted Average Growth / Straight Line Rent		Weighted Average Lease Term (mos)	Tenant Improvements & Incentives Per Sq. Ft.		Average Free Rent (mos)
Office Comparable (1)
Q2 2017 (2)	15	95,858	$	47.49	110.5	%	136	$	111.25	4.7
Q1 2017	8	24,088	23.53		40.8	%	52	23.84		3.3
Q4 2016	14	52,455	29.81		45.0	%	72	23.17		1.4
Q3 2016	11	71,204	32.76		22.1	%	86	13.75		0.8
Total - twelve months (2)	48	243,605	$	38.42	68.7	%	112	$	71.70	3.2
Industrial Comparable (1)
Q2 2017	—	—	$	—	—	%	—	$	—	—
Q1 2017	2	156,896	3.06		13.6	%	30	0.35		1.7
Q4 2016	—	—	—		—	%	—	—		—
Q3 2016	—	—	—		—	%	—	—		—
Total - twelve months	2	156,896	$	3.06	13.6	%	30	$	0.35	1.7
Retail Comparable (1)
Q2 2017	15	72,487	$	25.91	12.7	%	133	$	29.96	0.1
Q1 2017	16	92,674	19.13		13.5	%	96	0.85		—
Q4 2016	14	87,871	20.48		15.8	%	56	0.73		—
Q3 2016	17	133,140	12.33		15.4	%	78	2.33		0.1
Total - twelve months	62	386,172	$	19.39	14.4	%	97	$	10.82	0.1
Total Comparable Leasing (1)
Q2 2017 (2)	30	168,345	$	41.30	54.8	%	135	$	89.17	3.4
Q1 2017	26	273,658	10.30		16.9	%	54	2.59		1.2
Q4 2016	28	140,326	23.97		28.2	%	62	9.12		0.5
Q3 2016	28	204,344	19.45		16.2	%	80	6.31		0.3
Total - twelve months (2)	112	786,673	$	26.39	32.3	%	100	$	45.62	2.0
Total Leasing
Q2 2017	41	216,786	$	40.23			133	$	85.14	3.2
Q1 2017	38	358,544	10.15				54	4.87		1.4
Q4 2016	36	235,614	18.25				53	10.73		0.5
Q3 2016	41	336,374	17.94				67	11.14		1.0
Total - twelve months	156	1,147,318	$	23.90			74	$	25.51	1.4

(1) Comparable leases comprise leases for which prior leases were in place for the same suite within 12 months of executing a new lease. Comparable leases must have terms of at least six months and the square footage of the suite occupied by the new tenant cannot deviate by more than 50% from the size of the old lease’s suite.

(2) In Q2 2017, we signed a 53,000 square foot lease with WeWork LLC ("WeWork") at an office property in San Fransisco, CA. Excluding WeWork, our weighted average growth for comparable office leases for the three months ended June 30, 2017 and for the trailing twelve months ended June 30, 2017 was 29.5% and 32.0%, respectively. Excluding WeWork, our weighted average growth for total comparable leases for the three months ended June 30, 2017 and for the trailing twelve months ended June 30, 2017 was 14.6% and 19.2%, respectively.

Page | 22

INVESTMENT ACTIVITY

The following tables describe changes in our portfolio from December 31, 2015 through June 30, 2017 (dollars and square feet in thousands):

		Square Feet
Properties and Square Feet Activity	Number of Properties	Total		Office		Industrial		Retail
Properties owned as of
December 31, 2015	60	10,133		4,461		1,909		3,763
2016 Acquisitions	1	82		—		—		82
2016 Dispositions	(7)	(1,236	)	(1,058	)	(126	)	(52	)
Building remeasurement and other (1)	1	(8	)	(3	)	(1	)	(4	)
December 31, 2016	55	8,971		3,400		1,782		3,789
2017 Acquisitions	—	—		—		—		—
2017 Dispositions	(4)	(660	)	—		(609	)	(51	)
Building remeasurement and other (1)	—	4		4		—		—
June 30, 2017	51	8,315		3,404		1,173		3,738

(1) Building remeasurements reflect changes in gross leasable area due to renovations or expansions of existing properties. In the fourth quarter of 2016 we sold one building of a multi-building grocery-anchored retail property, and continue to own the remaining buildings.

Property Acquisitions	Segment	Market	Acquisition Date	Number of Properties	Contract Purchase Price		Square Feet
(dollars and square feet in thousands)
During 2016:
Suniland	Retail	South Florida	5/27/2016	1	$	66,500	82

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INVESTMENT ACTIVITY (continued)

Property Dispositions	Segment	Market	Disposition Date	Number of Properties	Contract Sales Price		Square Feet
(dollars and square feet in thousands)
During 2016
Colshire Drive	Office	Washington, DC	2/18/2016	1	$	158,400	574
40 Boulevard	Office	Chicago, IL	3/1/2016	1	9,850		107
Washington Commons	Office	Chicago, IL	3/1/2016	1	18,000		199
Rockland 360-372 Market	Retail	Greater Boston	8/5/2016	1	3,625		39
6900 Riverport	Industrial	Louisville, KY	9/2/2016	1	5,400		126
Sunset Hills	Office	Washington, DC	9/30/2016	1	18,600		178
CVS Holbrook (1)	Retail	Greater Boston	11/18/2016	1	6,200		13
Total for the year ended December 31, 2016				7	$	220,075	1,236
During 2017
Hanover	Retail	Greater Boston	5/31/2017	1	$	4,500	51
Industrial Portfolio	Industrial	Louisville, KY	6/9/2017	3	26,800		609
Total for the six months ended June 30, 2017				4	$	31,300	660

(1) We sold CVS Holbrook, one building of a multi-building grocery-anchored retail property, and continue to own the remaining buildings.

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DEFINITIONS

This section contains an explanation of certain non-GAAP financial measures we provide in other sections of this document, as well as the reasons why management believes these measures provide useful information to investors about the Company’s financial condition or results of operations. Additional detail can be found in the Portfolio’s most recent annual report on Form 10-K and quarterly report on Form 10-Q, as well as other documents filed with or furnished to the Securities and Exchange Commission from time to time.

2016 Annual Report on Form 10-K

We refer to our Annual Report on Form 10-K for the period ended December 31, 2016, filed with the Securities and Exchange Commission on March 3, 2017, as our “2016 Annual Report on Form 10-K.”

Annualized Base Rent

Annualized base rent represents the annualized monthly base rent of leases executed as of June 30, 2017.

Comparable leases

Comparable leases comprise leases for which prior leases were in place for the same suite within 12 months of executing a new lease. Comparable leases must have terms of at least six months and the square footage of the suite occupied by the new tenant cannot deviate by more than 50% from the size of the old lease’s suite.

Funds From Operations (“FFO”)

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

Limitations of FFO

FFO is presented herein as a supplemental financial measure and has inherent limitations. We do not use FFO as, nor should it be considered to be, an alternative to net income (loss) computed under GAAP as an indicator of our operating performance, or as an alternative to cash from operating activities computed under GAAP, or as an indicator of liquidity or our ability to fund our short or long-term cash requirements, including distributions to stockholders. Management uses FFO, in addition to net income (loss) computed under GAAP and cash flows from operating activities computed under GAAP, to evaluate our consolidated operating performance and as a guide to making decisions about future investments. Our FFO calculation does not present, nor do we intend it to present, a complete picture of our financial condition and operating performance. We caution investors against using FFO to determine a price to earnings ratio or yield relative to our NAV. We believe that net income (loss) computed under GAAP remains the primary measure of performance and that FFO is only meaningful when used in conjunction with net income (loss) computed under GAAP. Further, we believe that our consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of our financial condition and operating performance.

Further, FFO is not comparable to the performance measure established by the Investment Program Association (the “IPA”), referred to as “modified funds from operations,” or “MFFO,” as MFFO makes further adjustments including certain mark-to-market items and adjustments for the effects of straight-line rent. As such, FFO may not be comparable to the MFFO of non-listed REITs that disclose MFFO in accordance with the IPA standard.

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DEFINITIONS (continued)

Gross Investment Amount

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

Net Operating Income (“NOI”) and NOI - Cash Basis

We also use NOI as a supplemental financial performance measure because NOI reflects the specific operating performance of our real properties and debt-related investments and excludes certain items that are not considered to be controllable in connection with the management of each property, such as other-than-temporary impairment, losses related to provisions for losses on debt-related investments, gains or losses on derivatives, acquisition-related expenses, gains or losses on extinguishment of debt and financing commitments, interest income, depreciation and amortization, general and administrative expenses, advisory fees, interest expense and noncontrolling interests. However, NOI should not be viewed as an alternative measure of our operating financial performance as a whole, since it does exclude such items that could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating NOI. Therefore, we believe net income, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance. “NOI - Cash Basis” is NOI after eliminating the effects of straight-lining of rent and the impact of above- and below-market lease amortization and other non-cash amortization adjustments to rental revenue.

Non-Recurring Capital Expenditures

We classify capital expenditures that significantly increase a property’s ability to generate additional revenues relative to our initial underwriting as non-recurring capital expenditures. Examples of such capital expenditures may include property expansions, renovations or other significant strategic upgrades. Conversely, we classify capital expenditures incurred to maintain a property’s ability to generate expected revenues as “recurring.” In addition, we also classify the following capital expenditures as non-recurring:

• First Generation Leasing Costs: We classify capital expenditures incurred to lease spaces for which we have either (i) never had a tenant or (ii) we expected a vacancy of the leasable space within two years of acquisition as non-recurring capital expenditures.

• Value-Add Acquisitions: We define a Value-Add Acquisition as a property that we acquire with one or more of the following characteristics: (i) existing vacancy equal to or in excess of 20%, (ii) short-term lease roll-over, typically during the first two years of ownership, that results in vacancy in excess of 20% when combined with the existing vacancy at the time of acquisition or (iii) significant capital improvement requirements in excess of 20% of the purchase price within the first two years of ownership. We classify any capital expenditures in Value-Add Acquisitions as non-recurring until the property reaches the earlier of (i) stabilization, which we define as 90% leased or (ii) five years after the date we acquire the property.

• Other Acquisitions: For property acquisitions that do not meet the criteria to qualify as Value-Add Acquisitions, we classify all anticipated capital expenditures within the first year of ownership as non-recurring.

Q2 2017 Quarterly Report on Form 10-Q

We refer to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with the Securities and Exchange Commission on August 14, 2017, as our "Q2 Quarterly Report on Form 10-Q".

Same Store Properties

In our analysis of NOI, particularly to make comparisons of NOI between periods meaningful, it is important to provide information for properties that were in-service and owned by us throughout each period presented. We refer to properties acquired or placed in-service prior to the beginning of the earliest period presented and owned by us through the end of the latest period presented as “Same Store Properties.” “Same Store Properties” therefore exclude properties placed in-service, acquired, repositioned, or in development or redevelopment after the beginning of the earliest period presented or disposed of prior to the end of the latest period presented. Accordingly, it takes at least one year and one quarter after a property is acquired or treated as “in-service” for that property to be included in “Same Store Properties.” For the purposes of this supplement, our “Same Store Properties” include properties classified as held for sale in our annual financial statements at the end of the most recently completed period.

Valuation Procedures

We refer to our Valuation Procedures filed as Exhibit 99.1 to our 2016 Annual Report on Form 10-K as our “Valuation Procedures.”

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