fdc09799ec12441

Dividend Capital Diversified Property Fund Inc.

Form 10-Q

June 30, 2013

TABLE OF CONTENTS

P

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets.......................................................................................................................................................................	3
Condensed Consolidated Statements of Operations..................................................................................................................................................	4
Condensed Consolidated Statements of Comprehensive Income and Loss..................................................................................................	5
Condensed Consolidated Statement of Equity.............................................................................................................................................................	6
Condensed Consolidated Statements of Cash Flows................................................................................................................................................	7
Notes to Condensed Consolidated Financial Statements........................................................................................................................................	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.................................................	24
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................................................................................	40
Item 4. Controls and Procedures.........................................................................................................................................................................................	40

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.......................................................................................................................................................................................................	41
Item 1A. Risk Factors...............................................................................................................................................................................................................	41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds............................................................................................................	41
Item 3. Defaults upon Senior Securities...........................................................................................................................................................................	42
Item 4. Mine Safety Disclosures.........................................................................................................................................................................................	42
Item 5. Other Information........................................................................................................................................................................................................	42
Item 6. Exhibits............................................................................................................................................................................................................................	43

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and footnoted information)



	As of
	June 30, 2013	December 31, 2012
	(Unaudited)
ASSETS
Investments in real property	$ 2,560,229	$ 2,819,550
Accumulated depreciation and amortization	(489,184)	(482,782)
Total net investments in real property*	2,071,045	2,336,768
Debt related investments, net	123,017	187,321
Total net investments	2,194,062	2,524,089
Cash and cash equivalents	31,609	36,872
Restricted cash	23,391	32,968
Other assets, net	62,532	65,325
Total Assets	$ 2,311,594	$ 2,659,254
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes and other secured borrowings**	$ 1,004,982	$ 1,319,452
Unsecured borrowings	325,000	300,000
Financing obligations	18,104	18,176
Intangible lease liabilities, net	79,722	88,331
Other liabilities	87,385	91,768
Total Liabilities	$ 1,515,193	$ 1,817,727
Equity:
Stockholders’ equity:
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 175,564,384* and 178,127,559* shares issued and outstanding, as of June 30, 2013 and December 31, 2012, respectively	1,755	1,781
Additional paid-in capital	1,583,945	1,610,996
Distributions in excess of earnings	(870,346)	(850,885)
Accumulated other comprehensive loss	(12,821)	(16,196)
Total stockholders’ equity	702,533	745,696
Noncontrolling interests	93,868	95,831
Total Equity	796,401	841,527
Total Liabilities and Equity	$ 2,311,594	$ 2,659,254

* Includes approximately $226.6 million and $520.3 million, after accumulated depreciation and amortization, in consolidated real property variable interest entity investments as of June 30, 2013 and December 31, 2012, respectively.

** Includes approximately $142.1 million and $419.5 million in consolidated mortgage notes in variable interest entity investments as of June 30, 2013 and December 31, 2012, respectively.

*** Includes 173,842,089 shares of Class E common stock, 12,375 shares of Class A common stock, 12,375 shares of Class W common stock, and 1,697,545 shares of Class I common stock issued and outstanding as of June 30, 2013, and 178,090,434 shares of Class E common stock, 12,375 shares of Class A common stock, 12,375 shares of Class W common stock, and 12,375 shares of Class I common stock issued and outstanding as of December 31, 2012.

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

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share and footnoted information)



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012
REVENUE:
Rental revenue	$ 58,640	$ 58,582	$ 116,643	$ 117,911
Debt related income	2,615	1,759	5,350	3,642
Total Revenue	61,255	60,341	121,993	121,553
EXPENSES:
Rental expense	12,062	11,171	24,981	23,210
Real estate depreciation and amortization expense	25,608	27,525	51,017	55,075
General and administrative expenses	2,447	1,712	5,001	3,596
Advisory fees, related party	3,725	5,090	7,409	10,002
Acquisition-related expenses	-	24	-	323
Total Operating Expenses	43,842	45,522	88,408	92,206
Other Income (Expenses):
Interest and other income	172	47	252	110
Interest expense	(18,228)	(19,393)	(36,592)	(38,736)
Loss on extinguishment of debt and financing commitments	(425)	(2,464)	(695)	(3,884)
Loss from continuing operations	(1,068)	(6,991)	(3,450)	(13,163)
Discontinued operations, net of taxes*	19,525	(2,581)	16,043	(5,746)
Net Income (Loss)	18,457	(9,572)	12,593	(18,909)
Net (income) loss attributable to noncontrolling interests	(1,329)	701	(830)	1,550
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$ 17,128	$ (8,871)	$ 11,763	$ (17,359)
Net income (loss) per basic and diluted common share:
Continuing operations	$ (0.01)	$ (0.03)	$ (0.02)	$ (0.07)
Discontinued operations	$ 0.10	$ (0.01)	$ 0.08	$ (0.03)
NET INCOME (LOSS) PER BASIC AND DILUTED COMMON SHARE	$ 0.10	$ (0.05)	$ 0.07	$ (0.09)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic	178,176	182,690	178,481	182,964
Diluted	192,019	198,098	192,470	198,742
Distributions declared per common share	$ 0.0875	$ 0.1250	$ 0.1750	$ 0.2500

* Includes approximately $1.1 million and $68,000 paid to our Advisor for asset management fees associated with the disposition of real properties during the three months ended June 30, 2013 and 2012, respectively, and approximately $1.2 million and $101,000 paid to our Advisor for asset management fees associated with the disposition of real properties during the six months ended June 30, 2013 and 2012, respectively.

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

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND LOSS

(Unaudited)

(In thousands)



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012
Net Income (Loss)	$ 18,457	$ (9,572)	$ 12,593	$ (18,909)
Other Comprehensive Income (Loss):
Net unrealized change from available-for-sale securities	-	(785)	-	(1,161)
Unrealized change from cash flow hedging derivatives	2,254	2,221	2,900	2,965
Comprehensive income (loss)	20,711	(8,136)	15,493	(17,105)
Comprehensive (income) loss attributable to noncontrolling interests	(807)	589	(354)	1,408
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$ 19,904	$ (7,547)	$ 15,139	$ (15,697)

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

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(In thousands)



	Stockholders’ Equity
					Accumulated
			Additional	Distributions in	Other
	Common Stock		Paid-in	Excess of	Comprehensive	Noncontrolling	Total
	Shares	Amount	Capital	Earnings	Income (Loss)	Interests	Equity
Balances, December 31, 2012	178,128	$ 1,781	$ 1,610,996	$ (850,885)	$ (16,196)	$ 95,831	$ 841,527
Comprehensive income (loss):
Net income	-	-	-	11,763	-	830	12,593
Unrealized change from cash flow hedging derivatives	-	-	-	-	2,690	210	2,900
Common stock:
Issuance of common stock, net of offering costs	3,302	33	20,552	-	-	-	20,585
Redemptions of common stock	(5,866)	(59)	(39,998)	-	-	-	(40,057)
Distributions on common stock	-	-	-	(31,224)	-	-	(31,224)
Noncontrolling interests:
Contributions of noncontrolling interests	-	-	-	-	-	173	173
Distributions to noncontrolling interests	-	-	-	-	-	(2,999)	(2,999)
Redemptions of noncontrolling interests	-	-	(4,974)	-	685	1,561	(2,728)
Buyout of noncontrolling interest	-	-	(2,631)	-	-	(1,738)	(4,369)
Balances, June 30, 2013	175,564	$ 1,755	$ 1,583,945	$ (870,346)	$ (12,821)	$ 93,868	$ 796,401

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

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



	For the Six Months Ended June 30,
	2013	2012
OPERATING ACTIVITIES:
Net income (loss)	$ 12,593	$ (18,909)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Real estate depreciation and amortization expense	58,814	64,608
Gain on disposition of real property	(23,230)	-
Loss on financing commitments	695	3,909
Other adjustments to reconcile loss to net cash provided by operating activities	4,305	(750)
Changes in operating assets and liabilities	(13,843)	(6,384)
Net cash provided by operating activities	39,334	42,474

INVESTING ACTIVITIES:
Capital expenditures in real property	(11,845)	(6,424)
Proceeds from disposition of real property	33,292	7,299
Investment in debt related investments	(5,146)	(33,723)
Principal collections on debt related investments	26,817	2,583
Other investing activities	(1,300)	3,515
Net cash provided by (used in) investing activities	41,818	(26,750)

FINANCING ACTIVITIES:
Mortgage note principal repayments	(22,027)	(69,160)
Net proceeds from revolving line of credit borrowings	25,000	20,000
Repayment of other secured borrowings	(43,607)	-
Redemption of common shares	(23,083)	(25,669)
Distributions to common stockholders	(20,461)	(27,976)
Proceeds from sale of common stock	10,979	-
Offering costs for issuance of common stock	(1,495)	-
Other financing activities	(11,721)	(10,640)
Net cash used in financing activities	(86,415)	(113,445)

NET DECREASE IN CASH AND CASH EQUIVALENTS	(5,263)	(97,721)
CASH AND CASH EQUIVALENTS, beginning of period	36,872	128,447
CASH AND CASH EQUIVALENTS, end of period	$ 31,609	$ 30,726

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$ 39,361	$ 43,582
Amount issued pursuant to the distribution reinvestment plan	$ 10,895	$ 17,888
Non-cash principal collection on debt related investments	$ 42,271	$ 2,809
Non-cash reduction of mortgage note	$ 207,231	$ 16,753
Non-cash disposition of real property	$ 193,066	$ 3,300
Assumed mortgage	-	$ 124,800
Non-cash investment in real property	-	$ 125,854
Non-cash origination of debt related investment	-	$ 82,343
Non-cash origination of repurchase facility	-	$ 96,534

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

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

1. ORGANIZATION

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

We operate in a manner intended to qualify as a real estate investment trust (“REIT”) for federal income tax purposes and utilize an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) organizational structure to hold all or substantially all of our assets through our operating partnership, Dividend Capital Total Realty Operating Partnership, L.P. (our “Operating Partnership”). Furthermore, our Operating Partnership wholly owns a taxable REIT subsidiary, DCTRT Leasing Corp. (the “TRS”), through which we have executed certain business transactions that might otherwise have an adverse impact on our status as a REIT if such business transactions were to occur directly or indirectly through our Operating Partnership.

We are the sole general partner of our Operating Partnership. In addition, we have contributed 100% of the proceeds received from our offerings of common stock to our Operating Partnership in exchange for partnership units (“OP Units”) representing our interest as a limited partner of the Operating Partnership. As of June 30, 2013 and December 31, 2012, we owned approximately 92.7% and 92.6%, respectively, of the limited partnership interests in our Operating Partnership, and the remaining limited partnership interests in our Operating Partnership were owned by third-party investors. Our Operating Partnership has classes of OP Units that correspond to our four classes of common stock: Class E OP Units, Class A OP Units, Class W OP Units, and Class I OP Units. The OP Units held by third parties are all Class E OP Units. As of June 30, 2013 and December 31, 2012, our Operating Partnership had issued and outstanding approximately 13.8 million and 14.2 million Class E OP Units held by third party investors, respectively, which represent limited partnership interests issued in connection with its private placement offerings.

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

On July 12, 2012, the Securities and Exchange Commission (the “Commission”) declared effective our Registration Statement on Form S-11 (Registration Number 333-175989) (as amended, the “Registration Statement”). The Registration Statement applies to the offer and sale (the “Offering”) of up to $3,000,000,000 of our shares of common stock, of which $2,250,000,000 of shares are expected to be offered to the public in a primary offering and $750,000,000 of shares are expected to be offered to our stockholders pursuant to an amended and restated distribution reinvestment plan (subject to our right to reallocate such amounts). In the Offering, we are offering to the public three classes of shares: Class A shares, Class W shares and Class I shares with net asset value (“NAV”) based pricing. See Part I, Item 2 of this Quarterly Report on Form 10-Q for a description of our valuation procedures and valuation components, including important disclosure regarding real property valuations provided by Altus Group U.S., Inc., an independent valuation firm. Our independent registered public accounting firm does not audit our NAV. Selling commissions, dealer manager fees, and distribution fees are allocated to Class A shares, Class W shares, and Class I shares on a class-specific basis and differ for each class, even when the NAV of each class is the same. We are offering to sell any combination of Class A shares, Class W shares and Class I shares with a dollar value up to the maximum offering amount. We also sell shares of our unclassified common stock, which we refer to as “Class E” shares, pursuant to our distribution reinvestment plan offering registered on our Registration Statement on Form S-3 (Registration Number 333-162636). In the event of a liquidation event, such assets, or the proceeds therefrom, will be distributed ratably in proportion to the respective NAV for each class until the NAV for each class has been paid. Other than differing allocable fees and expenses and liquidation rights, Class E shares, Class A shares, Class W shares, and Class I shares have identical rights and privileges.

As of June, 30 2013, we had raised gross proceeds of approximately $11.4 million from the sale of approximately 1.7 million shares in the Offering, including less than $1,000 through our distribution reinvestment plan. As of June 30, 2013, approximately $2,988.6 million in shares remained available for sale pursuant to the Offering, including approximately $750.0 million in shares available for sale through our distribution reinvestment plan.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The accompanying interim condensed consolidated financial statements (herein referred to as “financial statements,” “balance sheets,” “statements of operations,” “statement of equity,” or “statements of comprehensive income and loss”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the Commission instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, these statements do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments and eliminations, consisting only of normal recurring items necessary for their fair presentation in conformity with GAAP. Interim results are not necessarily indicative of operating results for a full year. The unaudited information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited financial statements and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Commission on March 19, 2013. There have been no significant changes to Company's significant accounting policies during the six months ended June 30, 2013 other than the updates described below.

Reclassifications

Certain amounts included in the accompanying financial statements for 2012 have been reclassified to conform to the 2013 financial statements presentation. Income statement amounts and certain income statement disclosure amounts for properties disposed of have been reclassified to discontinued operations for all periods presented. Net distributions, discounts at redemption, cumulative losses, selling costs, and other comprehensive income (loss) of approximately $5.0 million related to redeemed OP Units have been reclassified from noncontrolling interests to additional paid-in capital.

New Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard update that requires disclosure of the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount is required under GAAP to be reclassified in its entirety to net income. Additionally, the update requires disclosure of changes in each component of other comprehensive income. The disclosure requirements were retroactively effective for us beginning January 1, 2013. As this guidance only requires expanded disclosure, the adoption did not have a significant impact on our consolidated financial statements.

3. INVESTMENTS IN REAL PROPERTY

Our consolidated investments in real property consist of investments in office, industrial and retail properties. The following tables summarize our consolidated investments in real property as of June 30, 2013 and December 31, 2012 (amounts in thousands):


Real Property	Land	Building and Improvements	Intangible Lease Assets	Total Investment Amount	Intangible Lease Liabilities	Net Investment Amount

As of June 30, 2013:
Office	$ 224,414	$ 876,941	$ 401,400	$ 1,502,755	$ (60,492)	$ 1,442,263
Industrial	33,416	252,262	49,234	334,912	(5,959)	328,953
Retail	227,218	417,592	77,752	722,562	(51,059)	671,503
Total gross book value	485,048	1,546,795	528,386	2,560,229	(117,510)	2,442,719
Accumulated depreciation/amortization	-	(188,114)	(301,070)	(489,184)	37,788	(451,396)
Total net book value	$ 485,048	$ 1,358,681	$ 227,316	$ 2,071,045	$ (79,722)	$ 1,991,323
As of December 31, 2012:
Office	$ 237,865	$ 939,722	$ 475,397	$ 1,652,984	$ (65,788)	$ 1,587,196
Industrial	52,598	329,844	61,967	444,409	(7,765)	436,644
Retail	227,218	416,971	77,968	722,157	(51,059)	671,098
Total gross book value	517,681	1,686,537	615,332	2,819,550	(124,612)	2,694,938
Accumulated depreciation/amortization	-	(189,740)	(293,042)	(482,782)	36,281	(446,501)
Total net book value	$ 517,681	$ 1,496,797	$ 322,290	$ 2,336,768	$ (88,331)	$ 2,248,437

Discontinued Operations

On January 13, 2013, we disposed of an office property located in the Dallas, TX market for which we recorded a net gain on the disposition of approximately $1.2 million. On May 10, 2013, we disposed of a portfolio of seven industrial properties that we held through a joint venture wherein we owned a 96.4% interest in the properties through a consolidated subsidiary, of which we were not the managing partner, to our joint venture partner that was the managing partner of the properties. We recorded a net loss on the sale of this portfolio of approximately $346,000. On June 6, 2013, we disposed of an office property in the New England market for which we recorded a net gain on the disposition of approximately $6.7 million.

On May 31, 2013, a 1.5 million square foot office property in the Dallas, Texas Market (“Comerica Bank Tower”) that we acquired during 2012 as a result of our foreclosure of a non-performing mezzanine loan was sold by a receiver pursuant to a court order to a purchaser unrelated to us. Because of the outstanding principal balance of the mortgage note, we did not receive any proceeds from the sale of Comerica Bank Tower. We recorded a net gain on the disposition of approximately $15.7 million.

We present the results of operations of these and all other disposed properties and their respective aggregate net gains (losses), collectively, as discontinued operations in our accompanying statements of operations when the operations and cash flows have been (or will be) eliminated from our ongoing operations and we will not have any significant continuing involvement. Interest expense is included in discontinued operations only if it is directly attributable to these operations or properties. The following table summarizes amounts recorded as discontinued operations (amounts in thousands):



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012
Revenues	$ 5,361	$ 10,179	$ 14,031	$ 15,320
Real estate depreciation and amortization expense	(2,682)	(6,080)	(7,797)	(9,533)
Other expenses	(5,171)	(8,537)	(13,421)	(13,062)
Loss from discontinued operations, net of taxes	(2,492)	(4,438)	(7,187)	(7,275)
Gain on disposition, net of taxes	22,017	1,857	23,230	1,529
Discontinued operations, net of taxes	$ 19,525	$ (2,581)	$ 16,043	$ (5,746)

Rental Revenue

The following table summarizes the adjustments to rental revenue related to the amortization of above-market lease assets, below-market lease liabilities, and for straight-line rental adjustments for the three and six months ended June 30, 2013 and 2012. In addition, the following table includes tenant recovery income received from tenants for real estate taxes, insurance and other property operating expenses and recognized as rental revenue (amounts in thousands):



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012
Straight-line rent adjustments	$ 2,759	$ 1,880	$ 5,727	$ 3,843
Above-market lease assets	(1,859)	(2,058)	(3,784)	(4,051)
Below-market lease liabilities	1,943	2,552	4,045	5,012
Total increase to rental revenue	$ 2,843	$ 2,374	$ 5,988	$ 4,804
Tenant recovery income	$ 8,553	$ 8,678	$ 17,342	$ 16,986

4. DEBT RELATED INVESTMENTS

As of June 30, 2013 and December 31, 2012, we had invested in 15 and 19 debt related investments, respectively. The weighted average maturity of our debt investments as of June 30, 2013 was 2.9 years, based on our recorded net investment. The following table describes our debt related income for the three and six months ended June 30, 2013 and 2012 (dollar amounts in thousands):



	For the Three Months Ended June 30		For the Six Months Ended June 30		Weighted Average Yield as of
Investment Type	2013	2012	2013	2012	June 30, 2013 ⁽¹⁾

Mortgage notes⁽²⁾	$ 2,299	$ 1,648	$ 4,727	$ 3,418	7.2%
B-notes	-	111	51	224	0.0%
Mezzanine debt	316	-	572	-	17.0%
Total	$ 2,615	$ 1,759	$ 5,350	$ 3,642	7.8%

(1) Weighted average yield is calculated on an unlevered basis using the amount invested, current interest rates and accretion of premiums or discounts realized upon the initial investment for each investment type as of June 30, 2013. Yields for LIBOR-based, floating-rate investments have been calculated using the one-month LIBOR rate as of June 30, 2013 for purposes of this table. As of June 30, 2013 we had one debt related investment with a net investment amount of $25.0 million that bears interest at a floating rate indexed to LIBOR. All of our remaining debt related investments bear interest at fixed rates. We have assumed a yield of zero on the one debt related investments for which we have recognized a full allowance for loss as of June 30, 2013.

(2) We had three and one debt related investments repaid in full during the six months ended June 30, 2013 and 2012, respectively. During the three and six months ended June 30, 2013 and 2012, amounts recorded include an early repayment fee received and accelerated amortization of origination fees offset by accelerated amortization of deferred due diligence costs related to these repayments.

Impairment

We review each of our debt related investments individually on a quarterly basis, and more frequently when such an evaluation is warranted, to determine if impairment exists. Accordingly, we do not group our debt related investments into classes by credit quality indicator. A debt related investment is impaired when, based on current information and events (including economic, industry and geographical factors), it is probable that we will be unable to collect all amounts due, both principal and interest, according to the contractual terms of the agreement. When an investment is deemed impaired, the impairment is measured based on the expected future cash flows discounted at the investment’s effective interest rate. As a practical expedient, we may measure impairment based on the fair value of the collateral of an impaired collateral-dependent debt investment. Regardless of the measurement method, we measure impairment based on the fair value of the collateral when it is determined that foreclosure is probable. We did not record any provision for loan loss during the three and six months ended June 30, 2013 or 2012. During the six months ended June 30, 2013 we wrote off the provision for loan loss on debt related investments of approximately $15.0 million related to one B-note debt investment loan restructuring. During the six months ended June 30, 2012, we wrote off the provision for loss on debt related investments of approximately $20.0 million related to a mezzanine debt investment that we foreclosed upon. The table below presents a reconciliation of the beginning and ending balances, between December 31, 2012 and June 30, 2013, of our allowance for loan loss (amounts in thousands):



		Allowance for Loan Loss

Beginning balance as of December 31, 2012:		$ 18,000
	Provision for loss on debt related investments	-
	Direct write offs	(15,000)
Ending balance as of June 30, 2013:		$ 3,000

We had one and two B-note debt investments on non-accrual status as of June 30, 2013 and December 31, 2012, respectively. One of our B-note debt investments that was on non-accrual status as of December 31, 2012 was written off upon our borrower’s completion of a loan restructuring during the six months ended June 30, 2013. We have recorded a complete allowance for loan loss related to our remaining debt related investment on non-accrual status. When a debt investment is on non-accrual status, we record income on the investment using the cash basis of accounting. The amount of income recorded on a cash basis of accounting

was not significant during the three and six months ended June 30, 2013 or 2012. All of our debt related investments that were past due 90 days or more were on non-accrual status as of June 30, 2013 and December 31, 2012.

As of June 30, 2013 and December 31, 2012, we had one and three impaired debt related investments with an unpaid principal balance of approximately $3.0 million and $30.1 million, respectively. The following table describes our recorded investment in debt related investments before allowance for loan loss, and the related allowance for loan loss (amounts in thousands):



	Debt Investments Individually Evaluated for Impairment as of
	June 30, 2013	December 31, 2012

Debt investments	$ 126,017	$ 205,321
Less: Allowance for loan losses	(3,000)	(18,000)
Total	$ 123,017	$ 187,321

All impaired debt investments are subordinate debt investments. The following table describes our gross recorded investment in impaired debt related investments, the related allowance for loan loss, and the total amount of impaired loans for which we have not recorded an allowance for loan loss (amounts in thousands):



As of:	Recorded Investment	Related Allowance	Amount of Impaired Loans With No Allowance Recorded
June 30, 2013	$ 3,000	$ (3,000)	$ -
December 31, 2012	$ 30,135	$ (18,000)	$ 12,135

The following table describes our average recorded net investment in the impaired debt related investments and the related interest income recorded (amounts in thousands):



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012
Average Recorded Investment	$ -	$ 12,952	$ 6,067	$ 13,011
Interest Income Recognized	$ -	$ 117	$ 51	$ 237

5. DEBT OBLIGATIONS

The following table describes our borrowings as of June 30, 2013 and December 31, 2012 (dollar amounts in thousands):


	Weighted Average Stated Interest Rate as of		Outstanding Balance as of ⁽¹⁾		Gross Investment Amount Securing Borrowings as of ⁽²⁾
	June 30, 2013	December 31, 2012	June 30, 2013	December 31, 2012	June 30, 2013	December 31, 2012
Fixed-rate mortgages	5.8%	5.8%	$ 946,392	$ 1,160,042	$ 1,829,303	$ 2,061,757
Floating-rate mortgages ⁽³⁾	3.9%	3.5%	8,760	23,701	15,303	42,609
Total mortgage notes	5.8%	5.7%	955,152	1,183,743	1,844,606	2,104,366
Repurchase facilities	2.4%	2.7%	49,830	135,709	71,359	198,389
Total other secured borrowings	2.4%	2.7%	49,830	135,709	71,359	198,389
Total secured borrowings	5.6%	5.4%	1,004,982	1,319,452	1,915,965	2,302,755
Line of credit	2.2%	2.2%	55,000	30,000	N/A	N/A
Term loan	2.1%	2.2%	270,000	270,000	N/A	N/A
Total unsecured borrowings	2.2%	2.2%	325,000	300,000	N/A	N/A
Total borrowings	4.8%	4.8%	$ 1,329,982	$ 1,619,452	$ 1,915,965	$ 2,302,755

(1) Amounts presented are net of (i) fair value adjustment to mortgages carried at fair value of $0 and $55.0 million as of June 30, 2013 and December 31, 2012, respectively, (ii) unamortized discounts to the face value of our outstanding fixed-rate mortgages of $2.1 million and $2.7 million as of June 30, 2013 and December 31, 2012, respectively, and (iii) GAAP principal amortization related to troubled debt restructurings of $1.1 million and $718,000 as of June 30, 2013 and December 31, 2012, respectively.

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

(3) As of June 30, 2013, floating-rate mortgages were subject to an interest rate spread of 3.75% over one-month LIBOR. As of December 31, 2012, floating-rate mortgage notes were subject to interest rates at spreads ranging from 2.9% to 3.75% over one-month LIBOR.

As of June 30, 2013, 12 mortgage notes were interest-only and 20 mortgage notes were fully amortizing with outstanding balances of approximately $340.3 million and $614.8 million, respectively. None of our mortgage notes are recourse to us.

As of June 30, 2013, we had outstanding borrowings of $270.0 million and $55.0 million, respectively, under our term loan and revolving credit facility components of our senior unsecured term loan and revolving line of credit (collectively, the “Facility”). As of June 30, 2013 the unused portion of the revolving credit facility component of the Facility was approximately $125.0 million, of which approximately $82.7 million was available. As of December 31, 2012, we had outstanding borrowings of $270.0 million and $30.0 million under the term loan and revolving credit facility components of the Facility, respectively, and $150.0 million was available for us to borrow under the revolving credit facility component of the Facility.

The following table reflects our contractual debt maturities as of June 30, 2013, specifically our obligations under secured borrowings and unsecured borrowings (dollar amounts in thousands):



	As of June 30, 2013

	Mortgage Notes and Other Secured Borrowings		Unsecured Borrowings		Total
Year Ending December 31,	Number of Borrowings Maturing	Outstanding Balance⁽¹⁾	Number of Borrowings Maturing	Outstanding Balance ⁽²⁾	Outstanding Balance ⁽³⁾⁽⁴⁾
2013	0	$ 7,623	0	$ -	$ 7,623
2014	4	148,694	0	-	148,694
2015	5	126,878	0	-	126,878
2016	13	322,743	1	55,000	377,743
2017	7	223,218	0	-	223,218
2018	0	4,999	1	270,000	274,999
2019	0	5,292	0	-	5,292
2020	1	157,944	0	-	157,944
2021	0	1,707	0	-	1,707
2022	1	1,663	0	-	1,663
Thereafter	2	7,408	0	-	7,408
Total	33	$ 1,008,169	2	$ 325,000	$ 1,333,169

(1) Secured borrowings presented include (i) mortgage note borrowings of approximately $958.3 million with maturities ranging from 2014 to 2029, and (ii) borrowings under one of our repurchase facilities of approximately $49.8 million, which mature in 2014 and are subject to three one-year extension options.

(2) Unsecured borrowings presented includes (i) revolving credit facility draws totaling $55.0 million which mature during 2016, subject to two one-year extension options, and (ii) term loan borrowings of $270.0 million which mature in 2018.

(3) Outstanding balance represents expected cash outflows for contractual amortization and scheduled balloon payment maturities and does not include (i) the mark-to-market adjustment on assumed debt of $2.1 million as of June 30, 2013, and (ii) the GAAP principal amortization of our restructured mortgage note of approximately $1.1 million that does not reduce the contractual amount due of the related mortgage note as of June 30, 2013.

(4) As of June 30, 2013, our mortgage notes and secured borrowings are secured by interests in real properties and debt investments totaling approximately $1.9 billion.

6. HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

We maintain risk management control systems to monitor interest rate risk attributable to both our outstanding and forecasted debt obligations. We generally seek to limit the impact of interest rate changes on earnings and cash flows by selectively utilizing derivative instruments to hedge exposures to changes in interest rates on loans secured by our assets. While this hedging strategy is designed to minimize the impact on our net income (loss) and cash provided by operating activities from changes in interest rates, the overall returns on our investments may be reduced. Our board of directors has established policies and procedures regarding our use of derivative instruments for hedging or other purposes to achieve these risk management objectives.

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps and caps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium payment. Additionally, we have entered into and plan to enter into certain interest rate derivatives with the goal of mitigating our exposure to adverse fluctuations in the interest payments on our one-month LIBOR-indexed debt.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges under ASC Topic 815 “Derivatives and Hedging” is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the next 12 months, we estimate that approximately $2.1 million will be reclassified as an increase to interest expense related to effective forward started interest rate swaps where the hedging instrument has been terminated, and we estimate that approximately $441,000 will be reclassified as an increase to interest expense related to active effective hedges of floating-rate debt issuances. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The table below presents a reconciliation of the beginning and ending balances, between December 31, 2012 and June 30, 2013, of our accumulated other comprehensive loss (“OCI”), net of amounts attributable to noncontrolling interests related to the effective portion of our cash flow hedges as presented on our financial statements, as well as amounts related to our available-for-sale securities (amounts in thousands):



		Gains and Losses on Cash Flow Hedges	Unrealized Gains and Losses on Available-For-Sale Securities	Accumulated Other Comprehensive Loss

Beginning balance as of December 31, 2012:		$ (14,710)	$ (1,486)	$ (16,196)
	Other comprehensive income:
	Amortization of interest expense	1,333	-	1,333
	Change in fair value	1,438	-	1,438
	Amounts reclassified from accumulated other comprehensive income:
	Losses reclassified into earnings upon discontinuance of cash flow hedges	129	-	129
	Net current-period other comprehensive income	2,900	-	2,900
	Attribution of and other adjustments to OCI attributable to noncontrolling interests	(31)	506	475
Ending balance as of June 30, 2013		$ (11,841)	$ (980)	$ (12,821)

Fair Values of Derivative Instruments

The table below presents the gross fair value of our derivative financial instruments as well as their classification on our accompanying balance sheet as of June 30, 2013 and December 31, 2012 (amounts in thousands):



	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	As of June 30, 2013 Fair Value	As of December 31, 2012 Fair Value	Balance Sheet Location	As of June 30, 2013 Fair Value	As of December 31, 2012 Fair Value

Derivatives designated as hedging instruments under ASC Topic 815
Interest rate contracts	Other assets, net ⁽¹⁾	$ 1,390	$ -	Other liabilities ⁽¹⁾	$ -	$ (403)
Total derivatives designated as hedging instruments under ASC Topic 815		1,390	-		-	(403)
Derivatives not designated as hedging instruments under ASC Topic 815
Interest rate contracts	Other assets, net ⁽¹⁾	$ -	-	Other liabilities ⁽¹⁾	-	(13)
Total derivatives not designated as hedging instruments under ASC Topic 815		-	-		-	(13)
Total derivatives		$ 1,390	$ -		$ -	$ (416)

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

The majority of the inputs used to value our derivative instruments fall within Level 2 of the fair value hierarchy. However, the credit valuation adjustments associated with our derivative instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of potential default by us and our counterparties. As of June 30, 2013, we had assessed the significance of the impact of the credit valuation adjustments and had determined that it was not significant to the overall valuation of our derivative instruments. As a result, we have determined that the significant inputs for all of our derivative valuations are classified in Level 2 of the fair value hierarchy.

Designated Hedges

As of June 30, 2013, we had five outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk, with a total notional amount of $156.1 million. As of December 31, 2012, we had two outstanding interest rate caps and two outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk, with a total notional amount of $90.0 million.

Undesignated Hedges

Derivatives not designated as hedges are not speculative and are used to hedge our exposure to interest rate movements and other identified risks but do not meet hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in a loss of approximately $8,000 and $19,000 for the three and six months ended June 30, 2012, respectively. Changes in the fair value of derivatives not designated in hedging relationships did not result in any gain or loss during the three and six months ended June 30, 2013. As of June 30, 2013 we had two outstanding interest rate caps that were not designated as hedges with a total notional amount of approximately $232.1 million. As of December 31, 2012, we had two outstanding interest rate caps and one interest rate swap that were not designated as hedges with a total notional amount of approximately $230.4 million.

Effect of Derivative Instruments on the Statements of Comprehensive Loss

The table below presents the effect of our derivative financial instruments on our accompanying financial statements for the three and six months ended June 30, 2013 and 2012 (amounts in thousands):



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012

Derivatives Designated as Hedging Instruments
Derivative type	Interest rate contracts	Interest rate contracts	Interest rate contracts	Interest rate contracts
Amount of gain (loss) recognized in OCI (effective portion)	$ 1,447	$ (25)	$ 1,438	$ (98)
Location of gain or (loss) reclassified from accumulated OCI into income (effective portion)	Interest expense	Interest expense	Interest expense	Interest expense
Amount of loss reclassified from accumulated OCI into income (effective portion)	$ (688)	$ (659)	$ (1,333)	$ (1,329)
Location of gain or (loss) recognized in income (ineffective portion and amount excluded from effectiveness testing)	Loss on financing commitments	Loss on financing commitments and Discontinued Operations	Loss on financing commitments and Discontinued Operations	Loss on financing commitments and Discontinued Operations
Amount of loss recognized in income due to missed forecast (ineffective portion and amount excluded from effectiveness testing)	$ (103)	$ (1,587)	$ (129)	$ (1,734)
Derivatives Not Designated as Hedging Instruments
Derivative type	Interest rate contracts	Interest rate contracts	Interest rate contracts	Interest rate contracts
Location of gain or (loss) recognized in income	N/A	Interest and other income	N/A	Interest and other income
Amount of gain or (loss) recognized in income	$ -	$ (8)	$ -	$ (19)

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

We are required to disclose the fair value of our financial instruments for which it is practicable to estimate the value. The fair value of a financial instrument is the amount at which such financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. For certain of our financial instruments, fair values are not readily available since there are no active trading markets as characterized by current exchanges between willing parties. Accordingly, we derive our estimated fair value using various valuation techniques, such as computing the present value of estimated future cash flows using discount rates commensurate with the risks involved. However, the determination of estimated cash flows may be subjective and imprecise and changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In that regard, the fair value estimates may not be substantiated by comparison to independent markets, and in many cases, may not be realized in immediate settlement of the instrument.

ASC Topic 820, Fair Value Measurement and Disclosures (“ASC Topic 820”), defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC Topic 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

ASC Topic 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.

As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that

are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liabilities, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The fair values estimated below are indicative of certain interest rate and other assumptions as of June 30, 2013 and December 31, 2012, and may not take into consideration the effects of subsequent interest rate or other assumption fluctuations, or changes in the values of underlying collateral. The fair values of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses approximate their carrying values because of the short-term nature of these instruments.

The carrying amounts and estimated fair values of our other financial instruments as of June 30, 2013 and December 31, 2012 were as follows (amounts in thousands):



	As of June 30, 2013		As of December 31, 2012
	Carrying Amount	Estimated Fair Value	Carrying Amount	Estimated Fair Value
Assets:
Investments in real estate securities	$ 461	$ 461	$ 461	$ 461
Fixed-rate debt related investments, net	97,742	99,896	108,482	110,796
Floating-rate debt related investments, net	25,276	24,967	78,839	79,803
Derivative instruments	1,390	1,390	-	-
Liabilities:
Fixed-rate mortgage notes carried at amortized cost	$ 946,392	$ 1,005,655	$ 1,037,047	$ 1,091,425
Fixed-rate mortgage notes carried at fair value	-	-	122,995	122,995
Floating-rate mortgage notes	8,760	8,789	23,701	23,738
Floating-rate other secured borrowings	49,830	49,830	135,709	135,931
Floating-rate unsecured borrowings	325,000	325,000	300,000	300,000
Derivative liabilities	-	-	416	416

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

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

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

8. RELATED PARTY TRANSACTIONS

Our day-to-day activities are managed by our Advisor, a related party, under the terms and conditions of the Advisory Agreement. Our Advisor is considered to be a related party as certain indirect owners and employees of our Advisor serve as one of our directors and/or our executive officers. As of June 30, 2013, the responsibilities of our Advisor included the selection and underwriting of our real property and debt related investments, the negotiations for these investments, the asset management and financing of these investments and the oversight of real property dispositions.

In connection with the Offering, we entered into an Eighth Amended and Restated Advisory Agreement (the “Advisory Agreement”) with our Advisor, effective July 12, 2012, which modified the fees and expense reimbursements payable to our Advisor. Per the Advisory Agreement, in consideration for asset management services performed, we pay our Advisor an advisory fee comprised of two separate components: (1) a fixed amount equal to 1.15% annually of the “Aggregate Fund NAV” (defined as the aggregate NAV of our Class E shares, Class A shares, Class W shares and Class I shares, along with the Class E OP Units held by third parties) for each day, and (2) a performance component that is based on the annual non-compounded investment return provided to holders of “Fund Interests” (defined as our Class E shares, Class A shares, Class W shares, Class I shares, and Class E OP Units held by third parties) such that the Advisor will receive 25% of the overall return in excess of 6%; provided that in no event may the performance condition exceed 10% of the overall return for such year, and subject to certain other limitations. We will also pay our Advisor a development management fee equal to 4% of the cost to develop, construct, or improve real property assets. In addition, we will pay our Advisor a fee of 1% of the sales price of individual real property assets upon disposition of such assets. Further, for a substantial amount of services in connection with the sale of a property, as determined by a majority of our independent directors, we will pay our Advisor up to 50% of the reasonable, customary and competitive commission paid for the sale of a comparable real property, provided that such amount shall not exceed 1% of the contract price of the property sold and, when added to all other real estate commissions paid to unaffiliated parties in connection with the sale, may not exceed the lesser of a competitive real estate commission or 6% of the sales price of the property.

In addition, pursuant to the Advisory Agreement, we will pay directly, or reimburse our Advisor and the Dealer Manager (defined below) if they pay on our behalf any organizational and offering expenses (other than selling commissions, the dealer manager fee, distribution fees and non-transaction based compensation allocated to sales-related activities of employees of the Dealer Manager in connection with the offering) relating to any public offerings as and when incurred. After the termination of the primary portion of the offering and again after termination of the distribution reinvestment plan portion of the offering, the Advisor has agreed to reimburse us to the extent that total cumulative organization and offering expenses (including selling commissions, the dealer manager fee and distribution fees) that we incur exceed 15% of our gross proceeds from the applicable offering.

Subject to certain limitations, we will reimburse the Advisor for all of the costs it incurs in connection with the services it provides to us, including, without limitation, our allocable share of the Advisor’s overhead, which includes but is not limited to the Advisor’s rent, utilities and personnel costs; provided, that we will not reimburse the Advisor or its affiliates for services for which the Advisor or its affiliates are entitled to compensation in the form of a separate fee.

In connection with the Offering, effective July 12, 2012, we also entered into a dealer manager agreement with Dividend Capital Securities LLC (the “Dealer Manager”), which is an entity related to our Advisor. Pursuant to this agreement, we pay (i) selling commissions up to 3% of the NAV per Class A share sold in the primary portion of the offering, (ii) a dealer manager fee which accrues daily in an amount equal to 1/365^th of 0.6% of our NAV per share of Class A and Class W shares outstanding and an amount equal to 1/365^th of 0.1% of our NAV per share of Class I shares outstanding on such day on a continuous basis, and (iii) a distribution fee which accrues daily in an amount equal to 1/365^th of 0.5% of our NAV per share of Class A shares outstanding on such day on a continuous basis. We will cease paying the dealer manager fee and distribution fee with respect to shares sold in the Offering on the earlier to occur of the following: (i) a listing of the class of such shares on a national securities exchange, (ii) following the completion of the Offering, total underwriting compensation in this offering equaling 10% of the gross proceeds from the primary portion of the Offering, or (iii) such shares no longer being outstanding. Dealer manager and distribution fees of approximately $1,000 and $1,000 were incurred during the three and six months ended June 30, 2013, respectively.

On May 31, 2013, the Company and the Dealer Manager entered into Amendment No. 1 to the Dealer Manager Agreement (“Amendment No. 1”). Amendment No. 1 provides that the Company will pay to the Dealer Manager a primary dealer fee in the amount of up to 5.0% of the gross proceeds raised from the sale of Class I shares sold in the Company’s primary public offering, provided that (i) the sales are all made before July 31, 2013 (unless extended by the Company, through written notice to the Dealer Manager) and (ii) the total gross proceeds raised with respect to which the primary dealer fee will apply may not exceed $300 million. The Dealer Manager will retain 0.5% of such gross proceeds and reallow the remainder of the primary dealer fee to the participating broker-dealers involved in selling such Class I shares based on the portion of the gross proceeds raised from their customers. The primary dealer fee will be considered underwriting compensation (as defined in accordance with, and subject to the underwriting compensation limits of, applicable Financial Industry Regulatory Authority rules). During the three and six months ended June 30,

2013, we incurred primary dealer fees earned pursuant to Amendment No. 1 of approximately $514,000, of which approximately $52,000 was retained by the Dealer Manager.

Dividend Capital Total Advisors Group LLC, the parent of the Advisor, had been previously issued, in exchange for $1,000 in consideration, partnership units in the Operating Partnership, constituting a separate series of partnership interests with special distribution rights (the “Special Units”). The Special Units constituted a form of incentive compensation that would have value if we met certain performance thresholds. In connection with the Offering, pursuant to a Special Unit Repurchase Agreement effective July 12, 2012, we redeemed and cancelled the 200 Special Units, and paid $1,000 to Dividend Capital Total Advisors Group LLC in connection with such redemption.

As of June 30, 2013 and December 31, 2012, we owed approximately $1.3 million and $1.3 million, respectively, to our Advisor and affiliates of our Advisor for such services and reimbursement of certain expenses. Pursuant to the amended Advisory Agreement, we accrue the advisory fee on a daily basis and pay our Advisor amounts due subsequent to each month-end.

The following table summarizes fees and other amounts earned by our Advisor and its related parties in connection with services performed for us during the three and six months ended June 30, 2013 and 2012 (amounts in thousands):



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012
Acquisition fees	$ -	$ 1,534	$ -	$ 1,534
Advisory fees	3,725	5,090	7,409	10,002
Development management fee	93	-	148	-
Other reimbursements	1,353	411	2,693	924
Asset management fees related to the disposition of real properties	1,083	68	1,168	101
Total	$ 6,254	$ 7,103	$ 11,418	$ 12,561

9. NET INCOME (LOSS) PER COMMON SHARE

Reconciliations of the numerator and denominator used to calculate basic net loss per common share to the numerator and denominator used to calculate diluted net loss per common share for the three and six months ended June 30, 2013 and 2012 are described in the following table (amounts in thousands, except per share information):


	For the Three Months Ended June 30,		For the Six Months Ended June 30,
Numerator	2013	2012	2013	2012
Loss from continuing operations	$ (1,068)	$ (6,991)	$ (3,450)	$ (13,163)
Loss from continuing operations attributable to noncontrolling interests	66	641	270	1,148
Loss from continuing operations attributable to common stockholders	(1,002)	(6,350)	(3,180)	(12,015)
Dilutive noncontrolling interests share of loss from continuing operations	(78)	(536)	(251)	(978)
Numerator for diluted earnings per share – adjusted loss from continuing operations	$ (1,080)	$ (6,886)	$ (3,431)	$ (12,993)
Income (loss) from discontinued operations	$ 19,525	$ (2,581)	$ 16,043	$ (5,746)
(Income) loss from discontinued operations attributable to noncontrolling interests	(1,395)	60	(1,100)	402
Income (loss) from discontinued operations attributable to common stockholders	18,130	(2,521)	14,943	(5,344)
Dilutive noncontrolling interests share of discontinued operations	1,409	(212)	1,157	(518)
Numerator for diluted earnings per share – adjusted income (loss) from discontinued operations	$ 19,539	$ (2,733)	$ 16,100	$ (5,862)
Denominator
Weighted average shares outstanding-basic	178,176	182,690	178,481	182,964
Incremental weighted average shares effect of conversion of OP units	13,843	15,408	13,989	15,778
Weighted average shares outstanding-diluted	192,019	198,098	192,470	198,742
INCOME (LOSS) PER COMMON SHARE-BASIC AND DILUTED
Net loss from continuing operations	$ (0.01)	$ (0.03)	$ (0.02)	$ (0.07)
Net income (loss) from discontinued operations	0.10	(0.01)	0.08	(0.03)
Net income (loss)	$ 0.10	$ (0.05)	$ 0.07	$ (0.09)

10. SEGMENT INFORMATION

We have four reportable operating segments, which include our three real property operating sectors (office, industrial, and retail) and debt related investments. We organize and analyze the operations and results of each of these segments independently, due to inherently different considerations for each segment. Such considerations include, but are not limited to, the nature and characteristics of the investment, and investment strategies and objectives. For example, the physical characteristics of our buildings, the related operating characteristics, the geographic markets, and the type of tenants are inherently different for each of our segments. The following table sets forth revenue and the components of net operating income (“NOI”) of our segments for the three and six months ended June 30, 2013 and 2012 (amounts in thousands):



	For the Three Months Ended June 30,
	Revenues			NOI
	2013		2012	2013	2012
Real property ⁽¹⁾
Office	$ 37,065		$ 37,062	$ 29,321	$ 29,562
Industrial	7,237		7,105	5,952	5,967
Retail	14,338		14,415	11,305	11,882
Debt related investments	2,615	2,931	1,759	2,615	1,759
Total	$ 61,255		$ 60,341	$ 49,193	$ 49,170
	For the Six Months Ended June 30,
	Revenues			NOI
	2013		2012	2013	2012
Real property ⁽¹⁾
Office	$ 73,835		$ 74,402	$ 58,007	$ 59,242
Industrial	14,403		14,223	11,867	11,935
Retail	28,405		29,286	21,788	23,524
Debt related investments	5,350		3,642	5,350	3,642
Total	$ 121,993		$ 121,553	$ 97,012	$ 98,343

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

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

The following table is a reconciliation of our NOI to our reported net income (loss) attributable to common stockholders for the three and six months ended June 30, 2013 and 2012 (amounts in thousands):



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012

Net operating income	$ 49,193	$ 49,170	$ 97,012	$ 98,343
Real estate depreciation and amortization expense	(25,608)	(27,525)	(51,017)	(55,075)
General and administrative expenses	(2,447)	(1,712)	(5,001)	(3,596)
Advisory fees, related party	(3,725)	(5,090)	(7,409)	(10,002)
Acquisition-related expenses*	-	(24)	-	(323)
Interest and other income	172	47	252	110
Interest expense	(18,228)	(19,393)	(36,592)	(38,736)
Loss on extinguishment of debt and financing commitments	(425)	(2,464)	(695)	(3,884)
Discontinued operations, net of taxes	19,525	(2,581)	16,043	(5,746)
Net (income) loss attributable to noncontrolling interests	(1,329)	701	(830)	1,550
Net income (loss) attributable to common stockholders	$ 17,128	$ (8,871)	$ 11,763	$ (17,359)

The following table reflects our total assets by business segment as of June 30, 2013 and December 31, 2012 (amounts in thousands):



	As of June 30, 2013	As of December 31, 2012
Segment assets:
Net investments in real property
Office	$ 1,202,130	$ 1,369,496
Industrial	260,690	351,375
Retail	608,225	615,897
Debt related investments, net	123,017	187,321
Total segment assets, net	2,194,062	2,524,089

Non-segment assets:
Cash and cash equivalents	31,609	36,872
Other non-segment assets⁽¹⁾	85,923	98,293
Total assets	$ 2,311,594	$ 2,659,254

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

11. SUBSEQUENT EVENTS

We have evaluated subsequent events for the period from June 30, 2013, the date of these financial statements, through the date these financial statements are issued.

Disposition of Real Property

On July 31, 2013, we disposed of an office property in the Denver, CO market comprising approximately 257,000 net rentable square feet to an unaffiliated third party. We sold the property, which had a basis of approximately $28.8 million as of June 30, 2013, for a total sales price of $71.0 million.

Increase of Revolving Credit Facility

On December 19, 2012, we entered into a credit agreement providing for a $450.0 million senior unsecured term loan and revolving line of credit (collectively, the “Facility”) with a syndicate of lenders led by Bank of America, N.A. as Administrative Agent. The Facility provided us with the ability from time to time to increase the size of the Facility up to a total of $800 million less the amount of any prepayments under the term loan component of the Facility, subject to receipt of lender commitments and other conditions. On July 31, 2013 we repaid the outstanding balance on the revolving line of credit using proceeds from the disposition of real property. On August 1, 2013, we increased the revolving line of credit by $170.0 million, thereby providing us with a $270.0 million term loan and a $350.0 million revolving credit facility, for a total of $620.0 million in aggregate.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such forward-looking statements may relate to, without limitation, our future capital expenditures, distributions and acquisitions (including the amount and nature thereof), other development trends of the real estate industry, business strategies, and the growth of our operations. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements are subject to a number of assumptions, risks and uncertainties that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” “continue,” or the negative of these words, or other similar words or terms. Readers are cautioned not to place undue reliance on these forward-looking statements. Among the factors that may cause our results to vary are general economic and business (particularly real estate and capital market) conditions being less favorable than expected, the business opportunities that may be presented to and pursued by us, changes in laws or regulations (including changes to laws governing the taxation of REITs), risk of acquisitions, availability and creditworthiness of prospective tenants, availability of capital (debt and equity), interest rate fluctuations, competition, supply and demand for properties in our current and any proposed market areas, tenants’ ability to pay rent at current or increased levels, accounting principles, policies and guidelines applicable to REITs, environmental, regulatory and/or safety requirements, tenant bankruptcies and defaults, the availability and cost of comprehensive insurance, including coverage for terrorist acts, and other factors, many of which are beyond our control. For a further discussion of these factors and other risk factors that could lead to actual results materially different from those described in the forward-looking statements, see “Risk Factors” under Item 1A of Part 1 of our Annual Report on Form 10-K filed with the Commission on March 19, 2013 and Part II, Item 1A of our Quarterly Report on Form 10-Q filed with the Commission on May 13, 2013, each available at www.sec.gov, and Part II, Item 1A of this Quarterly Report on Form 10-Q.

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

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

Overview

Dividend Capital Diversified Property Fund Inc. is a Maryland corporation formed on April 11, 2005 to invest in a diverse portfolio of real property and real estate related investments.

We believe we have operated in such a manner to qualify as a REIT for federal income tax purposes, and we utilize an UPREIT organizational structure to hold all or substantially all of our assets through our Operating Partnership. Furthermore, our Operating Partnership wholly owns a taxable REIT subsidiary, DCTRT Leasing Corp. (the “TRS”), through which we execute certain business transactions that might otherwise have an adverse impact on our status as a REIT if such business transactions were to occur directly or indirectly through our Operating Partnership. We are an externally managed REIT and have no employees. Our day-to-day activities are managed by our Advisor, a related party, under the terms and conditions of the Advisory Agreement.

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

we are offering to the public three classes of shares: Class A shares, Class W shares and Class I shares with net asset value (“NAV”) based pricing. See Part I, Item 2 of this Quarterly Report on Form 10-Q for a description of our valuation procedures and valuation components, including important disclosure regarding real property valuations provided by Altus Group U.S., Inc., an independent valuation firm. Our independent registered public accounting firm does not audit our NAV. Selling commissions, dealer manager fees, and distribution fees are allocated to Class A shares, Class W shares, and Class I shares on a class-specific basis and differ for each class, even when the NAV of each class is the same. We are offering to sell any combination of Class A shares, Class W shares and Class I shares with a dollar value up to the maximum offering amount. We also sell shares of our unclassified common stock, which we refer to as “Class E” shares, pursuant to our distribution reinvestment plan offering registered on our Registration Statement on Form S-3 (Registration Number 333-162636). In the event of a liquidation event, such assets, or the proceeds therefrom, will be distributed ratably in proportion to the respective NAV for each class until the NAV for each class has been paid. Other than differing allocable fees and expenses and liquidation rights, Class E shares, Class A shares, Class W shares, and Class I shares have identical rights and privileges.

As of June 30, 2013, we had total investments with an estimated fair value of approximately $2.6 billion (calculated in accordance with our valuation policies), comprised of:

(1) 84 operating properties located in 29 geographic markets in the United States, aggregating approximately 15.5 million net rentable square feet. As of June 30, 2013, our real property portfolio was approximately 96.2% leased. Our real property portfolio consists of:

• 32 office properties located in 15 geographic markets, aggregating approximately 6.2 million net rentable square feet, with an aggregate fair value amount of approximately $1.5 billion;

• 31 retail properties located in seven geographic markets, aggregating approximately 3.1 million net rentable square feet, with an aggregate fair value amount of approximately $709.7 million; and

• 21 industrial properties located in 13 geographic markets, aggregating approximately 6.2 million net rentable square feet, with an aggregate fair value amount of approximately $306.9 million.

(2) Approximately $123.0 million in net debt related investments, including (i) investments in mortgage notes of approximately $113.8 million and (ii) investments in mezzanine loans of $9.2 million.

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

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

• Cash on hand — As of June 30, 2013, we had approximately $31.6 million of cash and cash equivalents.

• Cash available under our line of credit — As of June 30, 2013, we had $125.0 million available for us to borrow under our revolving credit facility, subject to certain restrictions and limitations. Subsequent to June 30, 2013, we received commitment from our lenders for an additional $170.0 million available to borrow under the revolving credit facility, subject to certain restrictions and limitations. Additionally, subsequent to June 30, 2013, we repaid the existing balance on the line of credit using proceeds from the disposition of an operating real property, which resulted in a total of $350.0 million available for us to borrow under the line of credit, subject to certain restrictions and limitations.

• Cash generated from operations — During the six months ended June 30, 2013, we generated approximately $39.3 million from operations of our real properties and income from debt related investments.

• Proceeds from offerings of equity securities — We currently maintain the Offering, which consists of the offer and sale of up to $3,000,000,000 of our shares of common stock, of which $2,250,000,000 of shares are expected to be offered to the public in a primary offering and $750,000,000 of shares are expected to be offered to our stockholders pursuant to an amended and restated distribution reinvestment plan (subject to our right to reallocate such amounts). We cannot provide assurance that we will be successful in raising significant proceeds from the Offering. During the six months ended June 30, 2013, we raised approximately $11.4 million in proceeds from the sale of Class I shares in the Offering, including less than $1,000 under the distribution reinvestment plan. Additionally, during the six months ended June 30, 2013, we received approximately $10.9 million in proceeds from the Class E DRIP Offering.

• Proceeds from sales and repayments of existing investments — During the six months ended June 30, 2013, we sold nine operating properties for approximately $119.9 million. After closing costs and the repayment of the related mortgage

notes, we received net proceeds of $33.3 million. In addition, during that period three of our debt related investments with aggregate principal balances of $68.5 million were repaid to us in full.

We believe that our existing cash balance, the borrowing capacity available to us under the revolving credit facility component of the Facility, cash generated from operations, proceeds from our Public Offerings and our ability to sell investments remains adequate to meet our expected capital obligations for the next twelve months. Maintaining a strong balance sheet remains critical in the current market to position us well to preserve the value of our portfolio and to take advantage of investment opportunities.

Net Asset Value Calculation

Our board of directors, including a majority of our independent directors, has adopted valuation procedures that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV on a daily basis. The Independent Valuation Firm manages the fundamental element of the valuation process—the valuation of our real property portfolio. Our board of directors, including a majority of our independent directors, approved the Independent Valuation Firm.

The following table sets forth the components of NAV for the Company as of June 30, 2013 and March 31, 2013 (amounts in thousands except per share information). As used below, “Fund Interests” means our Class E shares, Class A shares, Class W shares, and Class I shares, along with the Class E OP Units held by third parties, and “Aggregate Fund NAV” means the NAV of all of the Fund Interests.



	NAV Figures as of June 30, 2013	NAV Figures as of March 31, 2013
Real properties	$ 2,520,750	$ 2,741,707
Debt related investments	123,017	165,469
Cash and other assets, net of other liabilities	(2,767)	14,636
Debt obligations	(1,331,401)	(1,604,181)
Outside investor's interests	(15,497)	(18,657)
Aggregate Fund NAV	$ 1,294,102	$ 1,298,974
Total Fund Interests outstanding	189,338	191,260
NAV per Fund Interest	$ 6.83	$ 6.79

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

Our valuation policies, which address specifically each category of our assets and liabilities and are applied separately from the preparation of our financial statements in accordance with GAAP, involve adjustments from historical cost. There are certain factors which cause NAV to be different from net book value on a GAAP basis. Most significantly, the valuation of our real estate assets, which is the largest component of our NAV calculation, will be provided to us by the Independent Valuation Firm on a daily basis. For GAAP purposes, these assets are generally recorded at depreciated or amortized cost. Other examples that will cause our NAV to differ from our GAAP net book value, include the straight-lining of rent, which results in a receivable for GAAP purposes that is not included in the determination of our NAV, and, for purposes of determining our NAV, the assumption of a value of zero in certain instances where the balance of a loan exceeds the value of the underlying real estate properties, where GAAP net book value would reflect a negative equity value for such real estate properties, even if such loans are non-recourse. Third party appraisers may value our individual real estate assets using appraisal standards that deviate from market value standards under GAAP. The use of such appraisal standards may cause our NAV to deviate from GAAP fair value principles. We did not develop our valuation policies and procedures with the intention of complying with fair value concepts under GAAP and, therefore, there could be differences between our fair values and the fair values derived from the principal market or most advantageous market concepts of establishing fair value under GAAP.

We include no discounts to our NAV for the illiquid nature of our shares, including the limitations on your ability to redeem shares under our share redemption programs and our ability to suspend or terminate our share redemption programs at any time. Our NAV does not consider exit costs (e.g. selling costs and commissions related to the sale of a property) that would likely be incurred if

our assets and liabilities were liquidated or sold. While we may use market pricing concepts to value individual components of our NAV, our per share NAV is not derived from the market pricing information of open-end real estate funds listed on stock exchanges.

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

The Independent Valuation Firm provides valuations for our real properties in accordance with our valuation procedures and using appraised values. The valuation of $2.52 billion compares to a GAAP basis of real properties (before accumulated amortization and depreciation) of $2.44 billion, representing an increase of approximately $78.0 million, or 3.2%. Certain key assumptions that were used by our Independent Valuation Firm in the discounted cash flow analysis are set forth in the following table based on weighted averages by property type:



	Retail	Office	Industrial	Weighted Average Basis
Exit capitalization rate	6.77%	7.12%	7.20%	7.04%
Discount rate / internal rate of return ("IRR")	7.24%	7.73%	7.90%	7.63%
Annual market rent growth rate	2.98%	3.27%	2.97%	3.15%
Average holding period	10.3	10.1	10.8	10.3

A change in the rates used would impact the calculation of the value of our real properties. For example, assuming all other factors remain constant, an increase in the weighted-average annual discount rate/IRR and the exit capitalization rate of 0.25% would reduce the value of our real properties by approximately 1.99% and 2.09%, respectively.

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



	Total	Class A Common Stock	Class I Common Stock	Class E Common Stock	Class W Common Stock	Class E OP Units

NAV as of March 31, 2013	$ 1,298,973	$ 84	$ 880	$ 1,203,419	$ 84	$ 94,506
Fund level changes to NAV
Realized/unrealized gains (losses) on net assets	6,849	*	74	6,293	*	482
Income accrual	22,067	1	37	20,436	1	1,592
Net dividend accrual	(16,796)	(1)	(28)	(15,555)	(1)	(1,211)
Advisory fee	(3,724)	*	(6)	(3,449)	*	(269)
Performance based fee	(4)	*	*	(4)	*	*
Class specific changes to NAV
Dealer Manager fee	(1)	*	(1)	-	*	-
Distribution fee	*	*	-	-	-	-
NAV as of June 30, 2013
before share sale/redemption activity	$ 1,307,364	$ 84	$ 956	$ 1,211,140	$ 84	$ 95,100
Share sale/redemption activity
Shares sold	16,036	-	10,646	5,390	-	-
Shares redeemed	(29,298)	-	-	(28,331)	-	(967)
NAV as of June 30, 2013	$ 1,294,102	$ 84	$ 11,602	$ 1,188,199	$ 84	$ 94,133
Shares outstanding as of March 31, 2013	191,261	12	129	177,191	12	13,917
Shares sold	2,365	-	1,568	797	-	-
Shares redeemed	(4,288)	-	-	(4,145)	-	(143)
Shares outstanding as of June 30, 2013	189,338	12	1,697	173,843	12	13,774
NAV per share as of March 31, 2013		$ 6.79	$ 6.79	$ 6.79	$ 6.79	$ 6.79
Change in NAV per share		0.04	0.04	0.04	0.04	0.04
NAV per share as of June 30, 2013		$ 6.83	$ 6.83	$ 6.83	$ 6.83	$ 6.83

* Immaterial amounts less than $500 are included in this figure.

How We Measure Our Operating Performance

Funds From Operations

FFO Definition (“FFO”)

We believe that FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is a meaningful supplemental measure of our operating performance because historical cost accounting for real estate assets in accordance with 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.

The following unaudited table presents a reconciliation of FFO to net income (loss) for the three and six months ended June 30, 2013 and 2012 (amounts in thousands, except per share information):



	For the Three Months Ended		For the Six Months Ended,
	June 30,		June 30,
	2013	2012	2013	2012
Reconciliation of net earnings to FFO:
Net income (loss) attributable to common stockholders	$ 17,128	$ (8,871)	$ 11,763	$ (17,359)
Add (deduct) NAREIT-defined adjustments:
Depreciation and amortization expense⁽¹⁾	28,290	33,605	58,814	64,608
Gain on disposition of real property⁽¹⁾	(22,017)	(1,857)	(23,230)	(1,529)
Noncontrolling interests’ share of net (income) loss	1,329	(701)	830	(1,550)
Noncontrolling interests’ share of FFO	(2,076)	(2,036)	(4,076)	(4,159)
FFO attributable to common shares-basic	22,654	20,140	44,101	40,011
FFO attributable to dilutive OP units	1,760	1,699	3,456	3,449
FFO attributable to common shares-diluted	$ 24,414	$ 21,839	$ 47,557	$ 43,460
FFO per share-basic and diluted	$ 0.13	$ 0.11	$ 0.25	$ 0.22
Weighted average number of shares outstanding
Basic	178,176	182,690	178,481	182,964
Diluted	192,019	198,098	192,470	198,742

(1) Includes amounts attributable to discontinued operations.

Company-Defined FFO

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

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

Acquisition-related expenses — For GAAP purposes, expenses associated with the acquisition of real property, including acquisition fees paid to our Advisor and gains or losses related to the change in fair value of contingent consideration related to the acquisition of real property, are recorded to earnings. We believe by excluding acquisition-related expenses, Company-Defined FFO provides useful supplemental information for management and investors when evaluating the sustainability of our operating performance, because these types of expenses are directly correlated to our investment activity rather than our ongoing operating activity.

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

Gains and losses on derivatives — Gains and losses on derivatives represent the gains or losses on the fair value of derivative instruments that are not accounted for as hedges of the underlying financing transactions. Such gains and losses may be due to the nonoccurrence of forecasted financings or ineffectiveness due to changes in the expected terms of financing transactions. As these gains or losses relate to underlying long-term assets and liabilities, where we are not speculating or trading assets, our management believes that any such gains or losses are not reflective of our ongoing operations. Accordingly, we believe by excluding anticipated gains or losses on derivatives, Company-Defined FFO provides useful supplemental information for management and investors when evaluating the sustainability of our operating performance.

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

The following unaudited table presents a reconciliation of Company-Defined FFO to FFO for the three and six months ended June 30, 2013 and 2012 (amounts in thousands, except per share information):



	For the Three Months Ended		For the Six Months Ended,
	June 30,		June 30,
	2013	2012	2013	2012
Reconciliation of FFO to Company-Defined FFO:
FFO attributable to common shares-basic	$ 22,654	$ 20,140	$ 44,101	$ 40,011
Add (deduct) our adjustments:
Acquisition-related expenses	-	24	-	323
Loss on extinguishment of debt and financing commitments, and loss on derivatives ⁽¹⁾	425	2,472	695	3,928
Noncontrolling interests’ share of NAREIT-defined FFO	2,076	2,036	4,076	4,159
Noncontrolling interests’ share of Company-Defined FFO	(2,106)	(2,230)	(4,127)	(4,495)
Company-Defined FFO attributable to common shares-basic	23,049	22,442	44,745	43,926
Company-Defined FFO attributable to dilutive OP units	1,791	1,893	3,506	3,786
Company-Defined FFO attributable to common shares-diluted	$ 24,840	$ 24,335	$ 48,251	$ 47,712
Company-Defined FFO per share-basic and diluted	$ 0.13	$ 0.12	$ 0.25	$ 0.24
Weighted average number of shares outstanding
Basic	178,176	182,690	178,481	182,964
Diluted	192,019	198,098	192,470	198,742

(1) Includes amounts attributable to discontinued operations.

Limitations of FFO and Company-Defined FFO

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

Specifically with respect to fees and expenses associated with the acquisition of real property, which are excluded from Company-Defined FFO, such fees and expenses are characterized as operational expenses under GAAP and included in the determination of net income (loss) and income (loss) from operations, both of which are performance measures under GAAP. The purchase of operating properties is a key strategic objective of our business plan focused on generating operating income and cash flow in order to fund our obligations and to make distributions to investors. However, as the corresponding acquisition-related costs are paid in cash, these acquisition-related costs negatively impact our GAAP operating performance and our GAAP cash flows from

operating activities during the period in which properties are acquired. In addition, if we acquire a property after all offering proceeds from our public offerings have been invested, there will not be any offering proceeds to pay the corresponding acquisition-related costs. Accordingly, such costs will then be paid from other sources of cash such as additional debt proceeds, operational earnings or cash flow, net proceeds from the sale of properties, or other ancillary cash flows. Among other reasons as previously discussed, the treatment of acquisition-related costs is a reason why Company-Defined FFO is not a complete indicator of our overall financial performance, especially during periods in which properties are being acquired. Note that, pursuant to our valuation policies, acquisition expenses result in an immediate decrease to our NAV.

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

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

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

Net Operating Income (“NOI”)

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

Our Operating Results

Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30, 2012

The following unaudited table illustrates the changes in rental revenue, rental expenses and net operating income for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. Our same store portfolio includes all operating properties that we owned for the entirety of both the current and prior year reporting periods, and comprises our entire operating portfolio. Our same store portfolio includes 84 properties acquired prior to January 1, 2012 and owned through June 30, 2013, comprising approximately 15.5 million square feet. A discussion of these changes follows the table (dollar amounts in thousands):



	For the Three Months Ended June 30,
	2013	2012	$ Change	% Change
Revenue
Base rental revenue-same store ⁽¹⁾	$ 47,646	$ 49,012	$ (1,366)	-3%
Other rental revenue-same store	10,994	9,570	1,424	15%
Total rental revenue-same store	58,640	58,582	58	0%
Rental revenue-2012/2013 acquisitions	-	-	-	N/A
Total rental revenue	58,640	58,582	58	0%
Debt related income	2,615	1,759	856	49%
Total revenue	$ 61,255	$ 60,341	$ 914	2%

Rental Expenses
Same store	$ 12,062	$ 11,171	$ 891	8%
2012/2013 acquisitions	-	-	-	N/A
Total rental expenses	$ 12,062	$ 11,171	$ 891	8%

Net Operating Income ⁽²⁾
Real property-same store	$ 46,578	$ 47,411	$ (833)	-2%
Real property-2012/2013 acquisitions	-	-	-	N/A
Debt related income	2,615	1,759	856	49%
Total net operating income	$ 49,193	$ 49,170	$ 23	0%

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

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

Rental Revenue

Total rental revenue increased slightly for the three months ended June 30, 2013, compared to the same period in 2012.

Same store base rental revenue decreased approximately $1.4 million for the three months ended June 30, 2013, compared to the same period in 2012. The decrease comprises (i) a $1.3 million decrease in our same store office portfolio, resulting primarily from rent concessions granted to tenants as part of leasing activity, (ii) a $214,000 decrease in our same store industrial portfolio, partially offset by a $114,000 increase in our same store retail portfolio. At the total same store portfolio level, the decrease is due to a $0.42 year-over-year decrease in our average base rent per leased square foot (from $13.27 to $12.85), partially offset by a 37 basis point year-over-year increase in our average percentage leased square feet (from 95.5% to 95.9%).

Same store other rental revenue increased for the three months ended June 30, 2013 compared to the same period in 2012. This increase was primarily attributable to an increase in our straight line rent adjustments across the same store portfolio resulting from large leases with initial periods of free rent incurred during the three months ended June 30, 2013. Additionally, the increase in average percentage leased period-over-period, particularly in our same store office portfolio, led to an increase in recovery revenue.

Debt Related Income

Debt related income increased for the three months ended June 30, 2013, compared to the same period in 2012. The increase is primarily attributable to the investments in debt related investments of approximately $125.6 million subsequent to March 31, 2012, partially offset by the repayment of approximately $87.1 million in debt related investments subsequent to March 31, 2012.

Rental Expenses

Total rental expenses increased for the three months ended June 30, 2013, compared to the same period in 2012, due to (i) an increase in repairs and maintenance expenses due to higher average occupancy, (ii) an increase in bad debt expense related to common area maintenance collections, and (iii) an increase in property taxes due to rising appraised values of our operating properties.

Other Operating Expenses

General and administrative expenses: The revised fee structure pursuant to the amended Advisory Agreement in connection with the effectiveness of the NAV Offering on July 12, 2012 caused us to directly incur payroll and overhead costs associated with our acquisition activities since we no longer pay our Advisor an acquisition fee. In addition, we record fees and costs associated with estimating our daily NAV per share (appraisal, fund accounting and valuation specialist fees, etc.) to general and administrative expense. We started to incur such fees in July 2012 when we began publishing a daily NAV per share.

Asset management and advisory fees: The revised fee structure pursuant to the amended Advisory Agreement in connection with the effectiveness of the NAV Offering on July 12, 2012 significantly reduced the amount of advisory and asset management fees we pay our Advisor.

Other Income (Expenses)

Interest expense: Interest expense decreased for the three months ended June 30, 2013, compared to the same period in 2012, due to lower overall borrowings and a lower weighted average interest rate during the current year period. The $450 million senior unsecured term loan and revolving line of credit facility we entered into in December 2012 significantly changed the composition of our borrowings as we repaid senior secured mortgage notes and other secured borrowings using proceeds from this facility. Overall, interest expense decreased due to (i) the repayment of debt upon the disposition of real properties and the repayment of debt investments, and (ii) the decrease in our average borrowing costs due to our utilization of our revolving credit facility. The following table further describes our interest expense by debt obligation, and includes amortization of deferred financing costs, amortization related to our derivatives, and amortization of discounts and premiums (amounts in thousands):



	For the Three Months Ended June 30,
Debt Obligation	2013	2012
Mortgage notes ⁽¹⁾	$ 17,056	$ 22,011
Other secured borrowings	994	1,419
Unsecured borrowings	2,122	-
Financing obligations	301	300
Total interest expense	$ 20,473	$ 23,730

(1) Includes interest expense attributable to discontinued operations of $2.2 million and $4.3 million for the three months ended June 30, 2013 and 2012, respectively.

Loss on extinguishment of debt and financing commitments: Loss on financing commitments was approximately $425,000 and $2.5 million for the three months ended June 30, 2013 and 2012, respectively. The loss during the three months ended June 30, 2013 resulted primarily from the accelerated recognition of deferred loan costs related to repayments of secured borrowings of approximately $62.3 million, which were repaid prior to contractual maturity. The loss during the three months ended June 30, 2012 resulted primarily from (i) the repurchase of our own debt at a premium, (ii) the reclassification of OCI from a loss on hedges, and (iii) the accelerated recognition of deferred financing costs.

Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012

The following unaudited table illustrates the changes in rental revenue, rental expenses and net operating income for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. Our same store portfolio includes all operating properties that we owned for the entirety of both the current and prior year reporting periods, and comprises our entire operating portfolio. Our same store portfolio includes 84 properties acquired prior to January 1, 2012 and owned through June 30, 2013, comprising approximately 15.5 million square feet. A discussion of these changes follows the table (dollar amounts in thousands):



	For the Six Months Ended June 30,
	2013	2012	$ Change	% Change
Revenue
Base rental revenue-same store ⁽¹⁾	$ 95,032	$ 98,090	$ (3,058)	-3%
Other rental revenue- same store	21,611	19,821	1,790	9%
Total rental revenue-same store	116,643	117,911	(1,268)	-1%
Rental revenue-2012/2013 acquisitions	-	-	-	N/A
Total rental revenue	116,643	117,911	(1,268)	-1%
Debt related income	5,350	3,642	1,708	47%
Total revenue	$ 121,993	$ 121,553	$ 440	0%

Rental Expenses
Same store	$ 24,981	$ 23,210	$ 1,771	8%
2012/2013 acquisitions	-	-	-	N/A
Total rental expenses	$ 24,981	$ 23,210	$ 1,771	8%

Net Operating Income ⁽²⁾
Real property-same store	$ 91,662	$ 94,701	$ (3,039)	-3%
Real property-2012/2013 acquisitions	-	-	-	N/A
Debt related income	5,350	3,642	1,708	47%
Total net operating income	$ 97,012	$ 98,343	$ (1,331)	-1%

Rental Revenue

Total rental revenue decreased approximately $1.3 million for the six months ended June 30, 2013, compared to the same period in 2012.

Same store base rental revenue decreased approximately $3.1 million for the six months ended June 30, 2013, compared to the same period in 2012. The decrease comprises (i) a $2.9 million decrease in our same store office portfolio, resulting primarily from rent concessions granted to tenants as part of leasing activity, (ii) a $345,000 decrease in our same store industrial portfolio, partially offset by a $137,000 increase in our same store retail portfolio. At the total same store portfolio level, the decrease is due to a $0.41 year-over-year decrease in our average base rent per leased square foot (from $13.28 to $12.87), and a 5 basis point year-over-year decrease in our average leased square feet (from 95.6% to 95.5%)

Same store other rental revenue increased for the six months ended June 30, 2013 compared to the same period in 2012. This increase was primarily attributable to an increase in our straight line rent adjustments across the same store portfolio resulting from large leases with initial periods of free rent incurred during the six months ended June 30, 2013. Additionally, an increase in average percentage leased of our same store office portfolio led to an increase in recovery revenue period-over-period.

Debt Related Income

Debt related income increased for the six months ended June 30, 2013, compared to the same period in 2012. The increase is primarily attributable to the investments in debt related investments of approximately $125.6 million subsequent to December 31, 2011, partially offset by the repayment of approximately $90.8 million in debt related investments subsequent to December 31, 2011.

Rental Expenses

Total rental expenses increased for the six months ended June 30, 2013, compared to the same period in 2012.

Same store rental expenses increased for the six months ended June 30, 2013, compared to the same period in 2012. More severe winter weather in geographic markets in which we have higher concentrations of real properties (New England and New Jersey) resulted in significant increases in snow removal and utilities expenses. Additional factors leading to an increase in rental expenses period-over-period included (i) an increase in property taxes due to higher appraised values of our properties, and (ii) an increase in utilities charges related to higher average leased square feet in our office portfolio and severe weather in the first three months of 2013.

Other Operating Expenses

Other Income (Expenses)

Interest expense: Interest expense decreased for the six months ended June 30, 2013, compared to the same period in 2012 due to lower overall borrowings and a lower weighted average interest rate during the current year period. The $450 million senior unsecured term loan and revolving line of credit facility we entered into in December 2012 significantly changed the composition of our borrowings as we repaid senior secured mortgage notes and other secured borrowings using proceeds from this facility. The lower cost of borrowing associated with the credit facility and other repayments of borrowings related to disposition activity significantly decreased our interest on mortgage notes. Furthermore, we incurred additional interest expense under our repurchase facility which we used to partially finance our acquisition/origination of our debt investments in 2012. The following table further describes our interest expense by debt obligation, and includes amortization of deferred financing costs, amortization related to our derivatives, and amortization of discounts and premiums (amounts in thousands):



	For the Six Months Ended June 30,
Debt Obligation	2013		2012
Mortgage notes ⁽¹⁾	$ 35,736		$ 42,330
Other secured borrowings	2,218		2,589
Unsecured borrowings	4,074	59,747	-
Financing obligations	596		598
Total interest expense	$ 42,624		$ 45,517

(1) Includes interest expense attributable to discontinued operations of $6.0 million and $6.8 million for the six months ended June 30, 2013 and 2012, respectively.

Loss on extinguishment of debt and financing commitments: Loss on financing commitments was approximately $695,000 and $3.9 million for the six months ended June 30, 2013 and 2012, respectively. The loss during the six months ended June 30, 2013 resulted primarily from the accelerated recognition of deferred loan costs related to repayments of other secured borrowings of approximately $85.5 million, which were repaid prior to contractual maturity. The loss during the six months ended June 30, 2012 resulted primarily from (i) the repurchase of our own debt at a premium, (ii) the reclassification of OCI from losses on hedges upon early repayment of the related debt, and (iii) the accelerated recognition of deferred financing costs related to early repayment of two mortgage notes.

Liquidity and Capital Resources

Liquidity Outlook

We believe our existing cash balance, our available credit under our line of credit, cash from operations, additional proceeds from our Public Offerings, proceeds from the sale of existing investments, and prospective debt or equity issuances will be sufficient to meet our liquidity and capital needs for the foreseeable future, including the next 12 months. Our capital requirements over the next 12 months are anticipated to include, but are not limited to, operating expenses, distribution payments, debt service payments, including debt maturities of approximately $58.6 million, of which $49.8 million are subject to certain extension options, share redemption payments, acquisitions of real property and debt related investments.

In order to maintain a reasonable level of liquidity for redemptions of Class A, Class W and Class I shares pursuant to our Class A, W and I Share Redemption Program, we intend to generally maintain under normal circumstances the following aggregate allocation to liquid assets: (1) 10% of the aggregate NAV of our outstanding Class A, Class W and Class I shares up to $1 billion of collective Class A, Class W and Class I share NAV, and (2) 5% of the aggregate NAV of our outstanding Class A, Class W and Class I shares in excess of $1 billion of collective Class A, Class W and Class I share NAV. However, our board of directors has the right to modify, suspend or terminate our share redemption program if it deems such action to be in the best interest of our stockholders. As of June 30, 2013, the aggregate NAV of our outstanding Class A, Class W and Class I shares was approximately $11.8 million.

As of June 30, 2013, we had approximately $31.6 million of cash compared to $36.9 million as of December 31, 2012. The following discussion summarizes the sources and uses of our cash during the six months ended June 30, 2013.

Operating Activities

Net cash provided by operating activities was approximately $39.3 million for the six months ended June 30, 2013, compared to $42.5 million for the same period in 2012. The decrease was primarily comprised of (i) changes related to our operating assets and liabilities due to the timing of payments made and received, (ii) a decrease in the net operating income of our real properties and (iii) an increase in our general and administrative expenses, partially offset by (i) a decrease in cash paid for interest on borrowings, (ii), a decrease in asset management and advisory fees, and (iii) an increase in our debt related investment income.

Lease Expirations

Our primary source of funding for our property-level operating expenses and debt service payments is rent collected pursuant to our tenant leases. Our properties are generally leased to tenants for terms ranging from three to ten years. As of June 30, 2013, the weighted average remaining term of our leases was approximately 7.6 years, based on contractual remaining base rent, and 4.8 years, based on square footage. The following is a schedule of expiring leases for our consolidated operating properties by annualized base rent and square footage as of June 30, 2013 and assuming no exercise of lease renewal options (dollar amounts and square footage in thousands):



		Lease Expirations
Year		Number of Leases Expiring	Annualized Base Rent ⁽¹⁾	%	Square Feet	%
2013 ⁽²⁾	………………………………..	59	$ 5,793	2.9%	601	4.0%
2014	………………………………..	80	14,008	7.1%	1,858	12.5%
2015	………………………………..	89	16,633	8.4%	1,788	12.0%
2016	………………………………..	54	25,658	13.0%	1,778	12.0%
2017 ⁽³⁾	………………………………..	44	51,217	26.0%	2,601	17.5%
2018	………………………………..	56	10,829	5.5%	1,850	12.4%
2019	………………………………..	39	17,341	8.8%	829	5.6%
2020	………………………………..	25	7,572	3.8%	407	2.7%
2021	………………………………..	11	11,166	5.7%	959	6.4%
2022	………………………………..	11	5,933	3.0%	431	2.9%
Thereafter	………………………………..	42	31,167	15.8%	1,779	12.0%
Total		510	$ 197,317	100.0%	14,881	100.0%

(1) Annualized base rent represents the annualized monthly base rent of leases executed as of June 30, 2013.

(2) Represents the number of leases expiring and annualized base rent for the remainder of 2013. Includes leases that are on a month-to-month basis at annualized amounts.

(3) Includes approximately $22.5 million annualized base rent and 594,000 square feet attributable to a lease with Charles Schwab & Co., Inc. (“Charles Schwab”) at one of our office properties located in New Jersey which expires in September 2017. Charles Schwab has subleased all of this area to various other sub-tenants. Approximately $7.1 million and 201,000 square feet are subject to lease agreements which expire subsequent to December 31, 2017. The leases with subtenants will likely become our direct tenants upon expiration of our lease with Charles Schwab.

Our operating portfolio was approximately 96.2% leased as of June 30, 2013, compared to approximately 90.1% as of June 30, 2012. This increase in our period-end percentage leased is primarily due to our disposition of (i) a 1.5 million square foot office property in Dallas, Texas that was approximately 69.3% leased as of June 30, 2012, (ii) a 503,000 square foot industrial property in the Central Pennsylvania market that was 0% leased as of June 30, 2012, and (iii) a 427,000 square foot office property in the Silicon Valley, California market that was approximately 51% leased as of June 30, 2012.

Investing Activities

Net cash provided by investing activities was approximately $41.8 million for the six months ended June 30, 2013, compared to approximately $26.8 million used in investing activities for the same period in 2012. The difference is primarily due to the payoff of three debt related investments and the disposition of ten operating properties during the six months ended June 30, 2013, and a decrease in our investment in debt related investments during the six months ended June 30, 2013 compared to the prior year, partially offset by an increase in capital expenditures during 2013 as compared to 2012. During the six months ended June 30, 2013 and 2012, we incurred approximately $11.8 million and $6.4 million in capital expenditures related to our real property portfolio, respectively. The increase in capital expenditures resulted primarily from the execution of large leases that required us to incur leasing costs, largely comprising commissions and fees paid to third-party leasing brokers and costs associated with the construction of tenant improvements.

Comerica Bank Tower

As described in our Annual Report on Form 10-K for the year ended December 31, 2012, on March 6, 2012, we became the 100% owner of the titleholder of a 1.5 million square foot office property in the Dallas, Texas market (“Comerica Bank Tower”), as the result of our foreclosure of a non-performing mezzanine loan for which such ownership interest had served as collateral. Comerica Bank Tower was subject to a mortgage note with a principal balance of $179.8 million as of the acquisition date bearing interest at 5.8%, which matures in January 2017. As of March 31, 2013, the unpaid principal balance of this mortgage note was $177.4 million. On September 10, 2012, we were notified that a receiver (the “Receiver”) had been appointed for the Comerica Bank Tower. On May 31, 2013, Comerica Bank Tower was sold by the Receiver pursuant to court order to a purchaser unaffiliated with us. Because of the outstanding principal balance of the mortgage note, we did not receive any proceeds from the sale of Comerica Bank Tower. The sale of Comerica Bank Tower did not have any impact on our NAV.

Financing Activities

Net cash used in financing activities during the six months ended June 30, 2013 was approximately $86.4 million and primarily comprised (i) the repayment of mortgage note and other secured borrowings, including the repayment of repurchase facility borrowings of approximately $22.9 million and a mortgage note borrowing of $14.5 million prior to their contractual maturities, (ii) redemptions of common shares and noncontrolling interests, and (iii) distributions to common stockholders and noncontrolling interests, partially offset by borrowings on our line of credit and proceeds from the sale of common stock. Net cash used in financing activities during the same period in 2012 was approximately $113.4 million, primarily comprising (i) the repayment of mortgage notes, (ii) the redemption of common shares and noncontrolling interests, (iii) distributions to common stockholders and noncontrolling interest holders, and (iv) scheduled repayments of our mortgage notes.

We have offered and will continue to offer Class E shares of common stock through the Class E DRIP Offering. The amount raised under the Class E DRIP Offering decreased by approximately $7.0 million to approximately $10.9 million for the six months ended June 30, 2013, from approximately $17.9 million for the same period in 2012. On July 12, 2012, we commenced the Offering. During the six months ended June 30, 2013, we raised approximately $11.4 million in proceeds from the sale of Class I shares, including approximately $1.0 million in proceeds from the sale of Class I shares to certain of our directors and officers, and including less than $1,000 under the distribution reinvestment plan.

Debt Maturities

Three of our mortgage notes with an aggregate outstanding balance as of June 30, 2013 of approximately $87.8 million, and our repurchase facility with an outstanding balance as of June 30, 2013 of $49.8 million, have initial maturities before January 1, 2015. One of the mortgage notes with an outstanding balance of $39.3 million, and the repurchase facility, each have extension options beyond December 31, 2014. These extension options are subject to certain lender covenants and restrictions that we must meet to

extend the respective maturity dates. We currently believe that we will qualify for and expect to exercise our extension options. However, we cannot guarantee that we will meet the requirements to extend the notes or repurchase agreement upon initial maturity. In the event that we do not qualify to extend the notes or repurchase facility, we expect to repay them with proceeds from new borrowings.

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

Distributions

To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our real estate investment trust taxable income, determined without regard to the deduction for distributions paid and by excluding net capital gains. The payment of distributions is determined by our board of directors and may be adjusted at its discretion at any time. Distribution levels are set by our board of directors at a level it believes to be appropriate and sustainable based upon a review of a variety of factors including, but not limited to, REIT requirements, the evaluation of existing assets within our portfolio, anticipated acquisitions, projected levels of additional capital to be raised, debt to be incurred in the future and the anticipated results of operations.

The following table sets forth relationships between the amounts of distributions declared for such period and the amount reported as cash flow from operations in accordance with GAAP for the three and six months ended June 30, 2013 and 2012 (dollar amounts in thousands):


	For the Three Months Ended				For the Six Months Ended
Distributions:	June 30, 2013	% of Total Distributions	June 30, 2012	% of Total Distributions	June 30, 2013	% of Total Distributions	June 30, 2012	% of Total Distributions
Common stock distributions paid in cash	$ 10,295	60.2%	$ 14,283	55.9%	$ 20,545	60.0%	$ 28,351	55.7%
Other cash distributions ⁽¹⁾	1,522	8.9%	2,727	10.7%	2,999	8.8%	5,131	10.1%
Total cash distributions	$ 11,817	69.1%	$ 17,010	66.5%	$ 23,544	68.8%	$ 33,482	65.8%
Common stock distributions reinvested in common shares	5,289	30.9%	8,552	33.5%	10,679	31.2%	17,393	34.2%
Total distributions	$ 17,106	100.0%	$ 25,562	100.0%	$ 34,223	100.0%	$ 50,875	100.0%
Sources of Distributions:
Cash flow from operations	$ 17,106	100.0%	$ 23,172	90.7%	$ 34,223	100.0%	$ 42,475	83.5%
Borrowings ⁽²⁾	$ -	0.0%	$ 2,390	9.3%	$ -	0.0%	$ 8,400	16.5%

(1) Other cash distributions include distributions declared for OP Units for the respective period, and all distributions made during the period to our joint venture partners that are noncontrolling interest holders.

(2) For purposes of this table, we presented the amounts funded from borrowings by subtracting the amount reported for cash flow from operations in accordance with GAAP from the total amount of distributions declared for such period. Our long-term strategy is to fund the payment of quarterly distributions to investors entirely from our operations. There can be no assurance that we will achieve this strategy.

Redemptions

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



Period	Total Number of Shares Requested for Redemption	Total Number of Shares Redeemed	Percentage of Shares Requested for Redemption Redeemed	Percentage of Shares Requested for Redemption Redeemed Pro Rata ⁽¹⁾	Average Price Paid per Share
Q2 2013	15,911	4,145	26.1%	22.6%	$ 6.83
Q1 2013	14,978	1,721	11.5%	8.7%	6.79
Q4 2012	14,770	1,693	11.5%	7.8%	6.70
Q3 2012	16,745	4,223	25.2%	20.4%	6.64
Total	62,404	11,782	18.9%	15.2%	$ 6.74

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

We have not yet redeemed any Class A, Class W or Class I shares pursuant to the Class A, W and I Share Redemption Program. See “Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” of this Quarterly Report on Form 10-Q for more information regarding redemptions of shares during the three months ended June 30, 2013.

Subsequent Events

For information regarding subsequent events, see Note 11 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

New Accounting Pronouncements and Significant Accounting Policies

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

As of June 30, 2013, the outstanding principal balance of variable rate debt investments indexed to LIBOR rates was $25.0 million. If the LIBOR rates relevant to our variable rate debt investments were to decrease 10%, we estimate that our quarterly interest income would decrease by approximately $1,000 based on the LIBOR rates and our outstanding floating-rate debt investments as of June 30, 2013.

As of June 30, 2013, the fair value of our fixed rate debt was $1,005.7 million and the carrying value of our fixed rate debt was $946.4 million. The fair value estimate of our fixed rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated as of June 30, 2013. As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.

As of June 30, 2013, we had approximately $383.6 million of variable rate borrowings outstanding indexed to LIBOR rates. If the LIBOR rates relevant to our remaining variable rate borrowings were to increase 10%, we estimate that our quarterly interest expense would increase by approximately $19,000 based on our outstanding floating-rate debt as of June 30, 2013.

We may seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs by selectively utilizing derivative instruments to hedge exposures to changes in interest rates on loans secured by our assets. We maintain risk management control systems to monitor interest rate cash flow risk attributable to both our outstanding and forecasted debt obligations as well as our potential offsetting hedge positions. While this hedging strategy is designed to minimize the impact on our net income (loss) and funds from operations from changes in interest rates, the overall returns on our investments may be reduced. Our board of directors has established policies and procedures regarding our use of derivative instruments for hedging or other purposes.

In addition to the above described risks, we are subject to additional credit risk. Credit risk refers to the ability of each individual borrower under our debt related investments to make required interest and principal payments on the scheduled due dates. We seek to reduce credit risk by actively monitoring our debt related investments and the underlying credit quality of our holdings. In the event of a significant rising interest rate environment and/or economic downturn, loan and collateral defaults may continue to increase and result in further credit losses that would continue to, or more severely, adversely affect our liquidity and operating results.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Please also see the risk factors discussed in Item 1A of Part I of our Annual Report on Form 10-K filed with the Commission on March 19, 2013 and Item 1A of Part II of our Quarterly Report on Form 10-Q filed with the Commission on May 13, 2013.

An investment in Class A, Class W or Class I shares will likely be impacted by class-specific expenses of future offerings.

Dealer manager fees and distribution fees are allocated on a class-specific basis, which means that the expenses are borne by all holders of the applicable class. For example, an investor who acquired Class A shares in a private offering will be allocated a proportional share of the dealer manager fees and distribution fees we pay with respect to Class A shares sold in our ongoing public offering of Class A, Class W and Class I shares. Such Class A expenses are allocated among all Class A shares ratably, regardless of how each Class A stockholder acquired his or her shares. As a result, purchasers of Class A, Class W or Class I shares in our ongoing public offering will likely be impacted by class-specific expenses that we pay with respect to future offerings of Class A, Class W and Class I shares. Specifically, we intend to operate as a perpetual-life REIT with respect to Class A, Class W and Class I stockholders, which means that we intend to offer Class A, Class W and Class I shares continuously. In order to do so, we will be required to file a new registration statement to register additional Class A, Class W and Class I shares of common stock with the Commission prior to the end of each three-year period following the commencement of our ongoing public offering of Class A, Class W and Class I shares described in Rule 415 under the Securities Act. Dealer manager fees and distribution fees that are payable to our Dealer Manager on an ongoing basis with respect to shares sold in our ongoing public offering of Class A, Class W and Class I shares (i.e., pursuant to our current registration statement) will cease when total underwriting compensation in the offering equals 10% of the gross proceeds from the primary portion of the offering. However, we expect that dealer manager fees and distribution fees will be payable with respect to Class A, Class W and Class I shares sold in subsequent offerings, and that investors in our ongoing public offering of Class A, Class W and Class I shares will be allocated a proportional share of such class-specific expenses.

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

Share Redemption Program and other redemptions

As of June 30, 2013, no material changes had occurred to our Class E Share Redemption Program (the “Class E SRP”) or our separate Class A, W and I Share Redemption Program (the “Class AWI SRP”) as discussed in Item 5 of our Annual Report on Form 10-K filed with the Commission on March 19, 2013.

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

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

In aggregate, for the three months ended June 30, 2013, we redeemed approximately 4.1 million shares of common stock pursuant to the Class E SRP for approximately $28.3 million, as described further in the table below. We did not redeem any Class A, Class W or Class I shares pursuant to the Class AWI SRP during the three months ended June 30, 2013.



Period	Total Number of Shares Redeemed	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Pursuant to the Program ⁽¹⁾
April 1 - April 30, 2013	440	$ 6.79	440	-
May 1 - May 31, 2013	-	-	-	-
June 1 - June 30, 2013	4,144,578	6.83	4,144,578	-
Total	4,145,018	$ 6.83	4,145,018	-

(1) Redemptions are limited under the Class E SRP and the Class AWI SRP as described above.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS




3.1	Articles of Restatement, incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K, filed March 21, 2012

3.2	Articles of Amendment, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed July 12, 2012

3.3	Articles Supplementary (Class A shares), incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed July 12, 2012

3.4	Articles Supplementary (Class W shares), incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K, filed July 12, 2012

3.5	Articles Supplementary (Class I shares), incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed July 12, 2012

3.6	Third Amended and Restated Bylaws, incorporated by reference to Exhibit 3.5 to the Company’s Current Report on Form 8-K, filed July 12, 2012

4.1	Fourth Amended and Restated Distribution Reinvestment Plan, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed July 12, 2012

4.2	Class E Share Redemption Program, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed July 12, 2012

4.3	Class A, W and I Share Redemption Program, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed July 12, 2012

4.4	Statement regarding transfer restrictions, preferences, limitations and rights of holders of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates), incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-11 (No. 333-175989), filed April 15, 2013

10.1	Amendment No. 1 to Amended and Restated Dealer Manager Agreement, incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed on June 5, 2013

10.2	Selected Dealer Agreement with Raymond James & Associates, Inc., incorporated by reference to Exhibit 1.2 to the Company’s Current Report on Form 8-K, filed on June 5, 2013

31.1	Rule 13a-14(a) Certification of Principal Executive Officer*

31.2	Rule 13a-14(a) Certification of Principal Financial Officer*

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

99.1	Consent of Altus Group U.S., Inc.*

101.INS	XBRL Instance Document*

101.SCH	XBRL Taxonomy Extension Schema Document*

101.CAL	XBRL Taxonomy Extension Calculation Linkbase*

101.LAB	XBRL Taxonomy Extension Label Linkbase*

101.PRE	XBRL Taxonomy Extension Presentation Linkbase*

101.DEF	XBRL Taxonomy Extension Definition Linkbase

* Filed or furnished herewith.

SIGNATURES

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


	DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

Date: August 12, 2013	/s/ JEFFREY L. JOHNSON
	Jeffrey L. Johnson Chief Executive Officer

Date: August 12, 2013	/s/ M. KIRK SCOTT
	M. Kirk Scott Chief Financial Officer and Treasurer


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

518 Seventeenth Street, 17th Floor Denver, CO	80202
(Address of principal executive offices)	(Zip Code)


Large accelerated filer	¨	Accelerated filer	¨

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