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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 000-55376
 
Industrial Property Trust Inc.
(Exact name of registrant as specified in its charter)
 
Maryland
 
61-1577639
(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)
(303) 228-2200
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
Accelerated filer
¨
Smaller reporting company
¨
 
 
 
 
 
 
Non-accelerated filer
x
(Do not check if a smaller reporting company)
Emerging growth company
x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
As of August 2, 2017, there were 174.4 million shares of the registrant’s common stock outstanding.


Table of Contents

INDUSTRIAL PROPERTY TRUST INC.
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.



Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDUSTRIAL PROPERTY TRUST INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
As of
(in thousands, except per share data)
 
June 30, 2017
 
December 31, 2016
 
 
(unaudited)
 
 
ASSETS
 
 
 
 
Net investment in real estate properties
 
$
2,592,911

 
$
2,478,329

Investment in unconsolidated joint ventures
 
91,599

 
69,695

Cash and cash equivalents
 
7,237

 
8,358

Restricted cash
 
65

 
80

Straight-line and tenant receivables, net
 
19,348

 
15,565

Due from affiliates
 
1,395

 
30

Other assets
 
17,153

 
23,251

Assets held for sale
 

 
15,625

Total assets
 
$
2,729,708

 
$
2,610,933

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
Liabilities
 
 
 
 
Accounts payable and accrued liabilities
 
$
18,145

 
$
21,912

Debt, net
 
1,320,050

 
1,288,642

Due to affiliates
 
30,889

 
31,006

Distributions payable
 
22,772

 
19,609

Other liabilities
 
47,355

 
43,527

Liabilities related to assets held for sale
 

 
267

Total liabilities
 
1,439,211

 
1,404,963

 
 
 
 
 
Commitments and contingencies (Note 12)
 

 

 
 
 
 
 
Equity
 
 
 
 
Stockholders' equity:
 
 
 
 
Preferred stock, $0.01 par value - 200,000 shares authorized, none
 
 
 
 
issued and outstanding
 

 

Class A common stock, $0.01 par value per share - 900,000 shares authorized,
 
 
 
 
104,112 shares and 99,374 shares issued and outstanding, respectively
 
1,042

 
994

Class T common stock, $0.01 par value per share - 600,000 shares authorized,
 
 
 
 
68,584 shares and 58,032 shares issued and outstanding, respectively
 
685

 
580

Additional paid-in capital
 
1,540,326

 
1,402,611

Accumulated deficit
 
(265,394
)
 
(212,807
)
Accumulated other comprehensive income
 
13,337

 
14,091

Total stockholders' equity
 
1,289,996

 
1,205,469

Noncontrolling interests
 
501

 
501

Total equity
 
1,290,497

 
1,205,970

Total liabilities and equity
 
$
2,729,708

 
$
2,610,933

See accompanying Notes to Condensed Consolidated Financial Statements.

1

Table of Contents

INDUSTRIAL PROPERTY TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
 
For the Three Months Ended
June 30,
 
For the Six Months Ended
June 30,
(in thousands, except per share data)
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
 
Rental revenues
 
$
55,110

 
$
40,447

 
$
109,682

 
$
73,699

Total revenues
 
55,110

 
40,447

 
109,682

 
73,699

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Rental expenses
 
14,490

 
10,462

 
29,011

 
19,602

Real estate-related depreciation and amortization
 
27,189

 
23,137

 
54,712

 
41,436

General and administrative expenses
 
1,953

 
1,807

 
4,195

 
3,606

Asset management fees, related party
 
5,503

 
4,146

 
10,886

 
7,541

Acquisition expenses, related party
 

 
10,019

 

 
17,148

Acquisition expenses
 

 
5,330

 

 
8,482

Total operating expenses
 
49,135

 
54,901

 
98,804

 
97,815

 
 
 
 
 
 
 
 
 
Operating income (loss)
 
5,975

 
(14,454
)
 
10,878

 
(24,116
)
 
 
 
 
 
 
 
 
 
Other expenses (income):
 
 
 
 
 
 
 
 
Equity in (income) loss of unconsolidated joint ventures
 
(114
)
 
51

 
(85
)
 
443

Interest expense and other
 
10,066

 
5,721

 
20,084

 
9,876

Net gain on disposition of real estate properties
 
(56
)
 

 
(131
)
 

Net loss on sell down of joint venture ownership interest
 

 

 

 
64

Total other expenses
 
9,896

 
5,772

 
19,868

 
10,383

 
 
 
 
 
 
 
 
 
Total expenses before expense support
 
59,031

 
60,673

 
118,672

 
108,198

 
 
 
 
 
 
 
 
 
Total expense repayment to Advisor
 

 
(1,431
)
 

 
(1,164
)
Net expenses after expense support
 
59,031

 
62,104

 
118,672

 
109,362

 
 
 
 
 
 
 
 
 
Net loss
 
(3,921
)
 
(21,657
)
 
(8,990
)
 
(35,663
)
Net income attributable to noncontrolling interests
 
(15
)
 

 
(31
)
 

Net loss attributable to common stockholders
 
$
(3,936
)
 
$
(21,657
)
 
$
(9,021
)
 
$
(35,663
)
Weighted-average shares outstanding
 
167,341

 
129,118

 
163,838

 
121,721

Net loss per common share - basic and diluted
 
$
(0.02
)
 
$
(0.17
)
 
$
(0.06
)
 
$
(0.29
)
See accompanying Notes to Condensed Consolidated Financial Statements.


2

Table of Contents

INDUSTRIAL PROPERTY TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
 
 
 
For the Three Months Ended
June 30,
 
For the Six Months Ended
June 30,
(in thousands)
 
2017
 
2016
 
2017
 
2016
Net loss attributable to common stockholders
 
$
(3,936
)
 
$
(21,657
)
 
$
(9,021
)
 
$
(35,663
)
Unrealized loss on derivative instruments, net
 
(2,304
)
 
(4,543
)
 
(754
)
 
(6,595
)
Comprehensive loss attributable to common stockholders
 
$
(6,240
)
 
$
(26,200
)
 
$
(9,775
)
 
$
(42,258
)
See accompanying Notes to Condensed Consolidated Financial Statements.

3

Table of Contents

INDUSTRIAL PROPERTY TRUST INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
 
 
 
Stockholders' Equity
 
 
 
 
 
 
 
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income
 
Noncontrolling Interests
 
Total Equity
 
 
Common Stock
 
(in thousands)
 
Shares
 
Amount
 
Balance as of December 31, 2016
 
157,406

 
$
1,574

 
$
1,402,611

 
$
(212,807
)
 
$
14,091

 
$
501

 
$
1,205,970

Net income (loss)
 

 

 

 
(9,021
)
 

 
31

 
(8,990
)
Unrealized loss on derivative
 
 
 
 
 
 
 
 
 
 
 
 
 
 
instruments
 

 

 

 

 
(754
)
 

 
(754
)
Issuance of common stock
 
15,667

 
157

 
160,797

 

 

 

 
160,954

Share-based compensation
 

 
 

 
737

 

 

 

 
737

Upfront offering costs, including
 
 
 
 
 
 
 
 
 
 
 
 
 
 
sales commissions, dealer manager
 
 
 
 
 
 
 
 
 
 
 
 
 
 
fees, and offering costs
 

 

 
(10,883
)
 

 

 

 
(10,883
)
Trailing offering costs, consisting of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
distribution fees
 

 

 
(5,544
)
 
3,125

 



 
(2,419
)
Redemptions of common stock
 
(377
)
 
(4
)
 
(7,392
)
 

 

 

 
(7,396
)
Distributions on common stock and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
dividends on noncontrolling interests
 

 

 

 
(46,691
)
 

 
(31
)
 
(46,722
)
Balance as of June 30, 2017
 
172,696

 
$
1,727

 
$
1,540,326

 
$
(265,394
)
 
$
13,337

 
$
501

 
$
1,290,497

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

INDUSTRIAL PROPERTY TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
For the Six Months Ended
June 30,
(in thousands)
 
2017
 
2016
Operating activities:
 
 
 
 
Net loss
 
$
(8,990
)
 
$
(35,663
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Real estate-related depreciation and amortization
 
54,712

 
41,436

Equity in (income) loss of unconsolidated joint ventures
 
(85
)
 
443

Straight-line rent and amortization of above- and below-market leases
 
(6,425
)
 
(5,429
)
Net gain on disposition of real estate properties
 
(131
)
 

Net loss on sell down of joint venture ownership interest
 

 
64

Other
 
1,970

 
1,640

Changes in operating assets and liabilities:
 
 
 
 
Tenant receivables, restricted cash and other assets
 
4,087

 
(154
)
Accounts payable, accrued expenses and other liabilities
 
494

 
7,978

Due from / to affiliates, net
 
(4,193
)
 
2,638

Net cash provided by operating activities
 
41,439

 
12,953

 
 
 
 
 
Investing activities:
 
 
 
 
Real estate acquisitions
 
(146,608
)
 
(836,998
)
Acquisition deposits
 
(1,025
)
 
(8,500
)
Proceeds from the disposition of real estate properties
 
15,427

 

Capital expenditures and development activities
 
(19,496
)
 
(18,089
)
Investment in unconsolidated joint ventures
 
(24,548
)
 
(6,069
)
Distributions from joint ventures
 
2,730

 

Net proceeds from sale of joint venture ownership interest
 

 
57,177

Net cash used in investing activities
 
(173,520
)
 
(812,479
)
 
 
 
 
 
Financing activities:
 
 
 
 
Proceeds from line of credit
 
138,000

 
617,000

Repayments of line of credit
 
(212,000
)
 
(610,000
)
Proceeds from mortgage note
 
105,000

 
289,480

Proceeds from term loan
 

 
250,000

Financing costs paid
 
(711
)
 
(4,705
)
Proceeds from issuance of common stock
 
137,307

 
291,774

Offering costs paid upon issuance of common stock
 
(8,684
)
 
(17,246
)
Distributions paid to common stockholders
 
(18,746
)
 
(11,539
)
Dividends paid on noncontrolling interests
 
(63
)
 

Distribution fees paid
 
(3,037
)
 
(1,298
)
Redemptions of common stock
 
(6,106
)
 
(778
)
Net cash provided by financing activities
 
130,960

 
802,688

 
 
 
 
 
Net (decrease) increase in cash and cash equivalents
 
(1,121
)
 
3,162

Cash and cash equivalents, at beginning of period
 
8,358

 
7,429

Cash and cash equivalents, at end of period
 
$
7,237

 
$
10,591

 
 
 
 
 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
 
Distributions payable
 
$
22,772

 
$
16,886

Redemptions payable
 
3,785

 
1,074

Future estimated distribution fees payable
 
29,372

 
19,777

Distributions reinvested in common stock
 
21,714

 
13,483

Non-cash capital expenditures
 
1,725

 
1,024

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

INDUSTRIAL PROPERTY TRUST INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.
BASIS OF PRESENTATION
Unless the context otherwise requires, the “Company” refers to Industrial Property Trust Inc. and its consolidated subsidiaries.
The accompanying unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain disclosures normally included in the annual audited financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been omitted. As such, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 15, 2017 (“2016 Form 10-K”).
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments and eliminations, consisting only of normal recurring adjustments necessary for a fair presentation in conformity with GAAP.
Recently Adopted Accounting Standards
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards update (“ASU”) No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”), which clarifies the definition of a business. ASU 2017-01 adds further guidance that assists preparers in evaluating whether a transaction will be accounted for as an asset acquisition or a business combination. The Company expects most of its acquisitions to qualify as asset acquisitions under the standard, which requires the capitalization of transaction costs to the basis of the acquired assets. ASU 2017-01 is effective for periods beginning after December 15, 2017. However, the Company early adopted this standard effective January 1, 2017. Under this new standard, all acquisition costs are being capitalized instead of expensed. For the six months ended June 30, 2017, $4.1 million of acquisition costs (including the acquisition fees paid to Industrial Property Advisors LLC (the “Advisor”) and its affiliates) were capitalized in net investment in real estate properties on the condensed consolidated balance sheets under the new standard instead of expensed as in prior periods.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Acquisition Costs
Transaction costs associated with the acquisition of a property (including the acquisition fees paid to the Advisor and its affiliates) are allocated to land, building, and intangible lease assets on a pro-rata basis based on allocated purchase price and capitalized as incurred.

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Table of Contents

3.
REAL ESTATE ACQUISITIONS
The Company acquired 100% of the following properties during the six months ended June 30, 2017:
 
 
 
 
 
 
 
 
 
 
Intangibles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Above-
 
Below-
 
 
 
 
 
 
Number
 
 
 
 
 
Intangible
 
Market
 
Market
 
Total
 
 
Acquisition
 
of
 
 
 
 
 
Lease
 
Lease
 
Lease
 
Purchase
($ in thousands)
 
Date
 
Buildings
 
Land
 
Building
 
Assets
 
Assets
 
Liabilities
 
Price (1)
South Bay Distribution Center
 
1/4/2017
 
1
 
$
9,334

 
$
2,928

 
$

 
$

 
$

 
$
12,262

Tempe Business Center
 
1/5/2017
 
1
 
3,009

 
5,993

 
1,031

 

 
(258
)
 
9,775

Corona Industrial Center
 
1/12/2017
 
1
 
4,322

 
4,684

 
730

 

 

 
9,736

Sycamore Industrial Center
 
1/13/2017
 
3
 
4,556

 
11,765

 

 

 

 
16,321

Oakesdale Commerce Center
 
2/8/2017
 
1
 
2,234

 
4,098

 
501

 

 

 
6,833

Airways Distribution Center
 
2/24/2017
 
2
 
5,461

 
28,840

 
3,791

 

 
(1,041
)
 
37,051

Tuscany Industrial Center
 
3/23/2017
 
1
 
1,928

 
4,462

 
839

 

 
(316
)
 
6,913

Lanham Distribution Center
 
5/11/2017
 
1
 
4,106

 
9,448

 

 

 

 
13,554

Trade Zone Industrial Center
 
5/15/2017
 
1
 
945

 
2,439

 
469

 

 

 
3,853

Addison Distribution Center
 
6/14/2017
 
1
 
8,030

 
14,883

 
1,740

 

 
(846
)
 
23,807

Rampart Industrial Center II
 
6/29/2017
 
1
 
2,184

 
6,613

 
1,229

 

 

 
10,026

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Acquisitions
 
 
 
14
 
$
46,109

 
$
96,153

 
$
10,330

 
$

 
$
(2,461
)
 
$
150,131

 
(1)
Total purchase price, which includes capitalized acquisition costs of $4.1 million, is equal to the total consideration paid.
Intangible and above-market lease assets are amortized over the remaining lease term. Below-market lease liabilities are amortized over the remaining lease term, plus any below-market, fixed-rate renewal option periods. The weighted-average amortization periods for the intangible assets and liabilities acquired in connection with the 2017 acquisitions, as of the respective date of each acquisition, were as follows:
Property
 
Amortization period
 
 
(years)
South Bay Distribution Center
 
-
Tempe Business Center
 
9.8
Corona Industrial Center
 
7.1
Sycamore Industrial Center
 
-
Oakesdale Commerce Center
 
10.1
Airways Distribution Center
 
5.9
Tuscany Industrial Center
 
4.5
Lanham Distribution Center
 
-
Trade Zone Industrial Center
 
4.4
Addison Distribution Center
 
6.4
Rampart Industrial Center II
 
12.0
4.
REAL ESTATE DISPOSITIONS
In February 2017, the Company sold to third parties the four industrial buildings that were classified as held for sale as of December 31, 2016, for net proceeds of approximately $15.4 million. Total disposition fees and expenses were $0.8 million, of which $0.4 million was paid to the Advisor. Total net gain recognized on dispositions was approximately $0.1 million. All of these buildings were located in the Atlanta market.

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Table of Contents

5.
INVESTMENT IN REAL ESTATE PROPERTIES
As of June 30, 2017 and December 31, 2016, the Company’s consolidated investment in real estate properties consisted of 225 and 215 industrial buildings, respectively.
 
 
As of
(in thousands)
 
June 30, 2017
 
December 31, 2016
Land
 
$
730,389

 
$
684,280

Building and improvements
 
1,793,730

 
1,686,929

Intangible lease assets
 
233,819

 
219,512

Construction in progress
 
16,895

 
13,843

Investment in real estate properties (1)
 
2,774,833

 
2,604,564

Less accumulated depreciation and amortization
 
(181,922
)
 
(126,235
)
Net investment in real estate properties
 
$
2,592,911

 
$
2,478,329

 
(1)
As of June 30, 2017, the Company had capitalized approximately $4.1 million of acquisition costs. As of December 31, 2016, there were no acquisition costs capitalized. See “Note 1” for detail on the new accounting standard we adopted effective January 1, 2017 and “Note 2” for a description of the accounting policy regarding acquisition costs.
Intangible Lease Assets and Liabilities
Intangible lease assets and liabilities, as of June 30, 2017 and December 31, 2016, include the following:
 
 
As of June 30, 2017
 
As of December 31, 2016
(in thousands)
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Intangible lease assets (1)
 
$
222,668

 
$
(82,532
)
 
$
140,136

 
$
208,361

 
$
(59,226
)
 
$
149,135

Above-market lease assets (1)
 
11,151

 
(4,212
)
 
6,939

 
11,151

 
(3,143
)
 
8,008

Below-market lease liabilities (2)
 
(33,284
)
 
10,858

 
(22,426
)
 
(30,929
)
 
7,798

 
(23,131
)
 
(1)
Included in net investment in real estate properties on the condensed consolidated balance sheets.
(2)
Included in other liabilities on the condensed consolidated balance sheets.
The following table details the estimated net amortization of such intangible lease assets and liabilities, as of June 30, 2017, for the next five years and thereafter:
 
 
Estimated Net Amortization
 
 
Intangible
 
Above-Market
 
Below-Market
(in thousands)
 
Lease Assets
 
Lease Assets
 
Lease Liabilities
Remainder of 2017
 
$
21,694

 
$
999

 
$
(3,043
)
2018
 
35,953

 
1,741

 
(5,247
)
2019
 
26,176

 
1,123

 
(4,213
)
2020
 
18,724

 
803

 
(3,339
)
2021
 
13,336

 
724

 
(2,547
)
Thereafter
 
24,253

 
1,549

 
(4,037
)
Total
 
$
140,136

 
$
6,939

 
$
(22,426
)

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Table of Contents

Rental Revenue Adjustments and Depreciation and Amortization Expense
The following table summarizes straight-line rent adjustments, amortization recognized as an increase (decrease) to rental revenues from above- and below-market lease assets and liabilities, and real estate-related depreciation and amortization expense:
 
 
For the Three Months Ended
June 30,
 
For the Six Months Ended
June 30,
(in thousands)
 
2017
 
2016
 
2017
 
2016
Increase (Decrease) to Rental Revenue:
 
 
 
 
 
 
 
 
Straight-line rent adjustments
 
$
1,975

 
$
2,424

 
$
4,327

 
$
4,200

Above-market lease amortization
 
(500
)
 
(606
)
 
(1,069
)
 
(1,153
)
Below-market lease amortization
 
1,562

 
1,276

 
3,167

 
2,382

 
 
 
 
 
 
 
 
 
Real Estate-Related Depreciation and Amortization:
 
 
 
 
 
 
 
 
Depreciation expense
 
$
15,863

 
$
11,401

 
$
31,312

 
$
20,599

Intangible lease asset amortization
 
11,326

 
11,736

 
23,400

 
20,837

6.
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The Company has entered into joint ventures with third-party investors for purposes of investing in industrial properties located in certain major U.S. distribution markets. The Company reports its investment for the Build-To-Core I Partnership LP (the “BTC I Partnership”) and the Build-To-Core II Partnership LP (the "BTC II Partnership"), under the equity method on the condensed consolidated balance sheets due to the fact that the Company maintains significant influence in each partnership. The following table summarizes the Company’s investment in the unconsolidated joint ventures:
 
 
As of
 
Investment in Unconsolidated
 
 
June 30, 2017
 
December 31, 2016
 
Joint Ventures as of
 
 
Ownership
 
Number of
 
Ownership
 
Number of
 
June 30,
2017
 
December 31,
2016
($ in thousands)
 
Percentage
 
Buildings
 
Percentage
 
Buildings
 
 
BTC I Partnership
 
20.0%
 
32
 
20.0%
 
27
 
$
88,654

 
$
69,695

BTC II Partnership
 
13.0%
 
5
 
 
 
2,945

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Total joint ventures
 
 
 
37
 
 
 
27
 
$
91,599

 
$
69,695


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7.
DEBT
The Company’s consolidated indebtedness is currently comprised of borrowings under its line of credit and term loans, and under mortgage notes. Borrowings under the non-recourse mortgage notes are secured by mortgages or deeds of trust and related assignments and security interests in collateralized and certain cross-collateralized properties, which are generally owned by single purpose entities. A summary of the Company’s debt is as follows:
 
 
Weighted-Average
 
 
 
 
 
 
 
 
Effective Interest Rate as of
 
 
 
Balance as of
($ in thousands)
 
June 30, 2017
 
December 31, 2016
 
Maturity Date
 
June 30, 2017
 
December 31, 2016
Line of credit (1)
 
2.29%
 
2.44%
 
January 2020
 
$
107,000

 
$
181,000

Term loan (2)
 
2.50%
 
2.65%
 
January 2021
 
350,000

 
350,000

Term loan (3)
 
2.83%
 
2.67%
 
May 2022
 
150,000

 
150,000

Fixed-rate mortgage notes (4)
 
3.36%
 
3.31%
 
July 2020 - December 2025
 
722,880

 
617,880

Total principal amount / weighted-average (5)
 
2.99%
 
2.94%
 
 
 
$
1,329,880

 
$
1,298,880

Less unamortized debt issuance costs
 
 
 
 
 
 
 
$
(9,830
)
 
$
(10,238
)
Total debt, net
 
 
 
 
 
 
 
$
1,320,050

 
$
1,288,642

 
 
 
 
 
 
 
 
 
 
 
Gross book value of properties encumbered by debt
 
 
 
 
 
$
1,148,030

 
$
986,818

 
(1)
The effective interest rate is calculated based on either: (i) the London Interbank Offered Rate (“LIBOR”) multiplied by a statutory reserve rate plus a margin ranging from 1.40% to 2.30%; or (ii) an alternative base rate plus a margin ranging from 0.40% to 1.30%, each depending on the Company’s consolidated leverage ratio. The weighted-average effective interest rate is the all-in interest rate, including the effects of interest rate swap agreements relating to $107.0 million in borrowings under this line of credit. As of June 30, 2017, the unused and available portions under the line of credit were $393.0 million and $312.6 million, respectively. The line of credit is available for general corporate purposes, including but not limited to the acquisition and operation of permitted investments.
(2)
The effective interest rate is calculated based on either: (i) LIBOR multiplied by a statutory reserve rate, plus a margin ranging from 1.35% to 2.20%; or (ii) an alternative base rate plus a margin ranging from 0.35% to 1.20%, each depending on the Company’s consolidated leverage ratio. The weighted-average effective interest rate is the all-in interest rate, including the effects of interest rate swap agreements. This term loan is available for general corporate purposes, including but not limited to the acquisition and operation of permitted investments.
(3)
The effective interest rate is calculated based on either: (i) LIBOR multiplied by a statutory reserve rate, plus a margin ranging from 1.60% to 2.50%; or (ii) an alternative base rate plus a margin ranging from 0.60% to 1.50%, each depending on the Company’s consolidated leverage ratio. The weighted-average effective interest rate is the all-in interest rate, including the effects of interest rate swap agreements relating to $43.0 million in borrowings under this term loan. This term loan is available for general corporate purposes, including but not limited to the acquisition and operation of permitted investments.
(4)
Interest rates range from 2.94% to 3.65%, which includes the effects of an interest rate swap agreement relating to a variable-rate mortgage note with an outstanding amount of $97.0 million as of both June 30, 2017 and December 31, 2016.
(5)
The weighted-average remaining term of our consolidated debt was approximately 5.4 years as of June 30, 2017, excluding any extension options on the line of credit.
As of June 30, 2017, the principal payments due on the Company’s consolidated debt during each of the next five years and thereafter were as follows:
(in thousands)
 
Line of Credit (1)
 
Term Loans
 
Mortgage Notes
 
Total
Remainder of 2017
 

 

 

 

2018
 

 

 
1,354

 
1,354

2019
 

 

 
2,191

 
2,191

2020
 
107,000

 

 
15,259

 
122,259

2021
 

 
350,000

 
6,047

 
356,047

Thereafter
 

 
150,000

 
698,029

 
848,029

Total principal payments
 
$
107,000

 
$
500,000

 
$
722,880

 
$
1,329,880

 
(1)
The term of the line of credit may be extended pursuant to a one-year extension option, subject to certain conditions.

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Debt Covenants
The Company’s line of credit, term loans and mortgage note agreements contain various property level covenants, including customary affirmative and negative covenants. In addition, the line of credit and term loan agreements contain certain corporate level financial covenants, including leverage ratio, fixed charge coverage ratio, and tangible net worth thresholds. The Company was in compliance with all debt covenants as of June 30, 2017.
Derivative Instruments
To manage interest rate risk for certain of its variable-rate debt, the Company uses interest rate swaps as part of its risk management strategy. These derivatives are designed to mitigate the risk of future interest rate increases by providing a fixed interest rate for a limited, pre-determined period of time. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the interest rate swap agreements without exchange of the underlying notional amount. As of June 30, 2017, the Company had 11 outstanding interest rate swap agreements, which were associated with $597.0 million of debt, that were designated as cash flow hedges of interest rate risk. Certain of the Company’s variable-rate borrowings are not hedged, and therefore, to an extent, the Company has on-going exposure to interest rate movements.
The effective portion of the change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) (“AOCI”) on the condensed consolidated balance sheets and is subsequently reclassified into earnings as interest expense for the period that the hedged forecasted transaction affects earnings, which is when the interest expense is recognized on the related debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. For the three and six months ended June 30, 2017, there was no hedge ineffectiveness. The Company expects no hedge ineffectiveness in the next 12 months.
The following table summarizes the location and fair value of the cash flow hedges on the Company’s condensed consolidated balance sheets:
 
 
 
 
 
 
Fair Value as of
 
 
Notional
 
Balance Sheet
 
June 30,
2017
 
December 31,
2016
(in thousands)
 
Amount
 
Location
 
 
Interest rate swaps
 
$
596,980

 
Other assets
 
$
13,337

 
$
14,091

The following table presents the effect of the Company’s cash flow hedges on the Company’s condensed consolidated financial statements:
 
 
For the Three Months Ended
June 30,
 
For the Six Months Ended
June 30,
(in thousands)
 
2017
 
2016
 
2017
 
2016
Interest rate swaps:
 
 
 
 
 
 
 
 
Loss recognized in AOCI (effective portion)
 
$
(2,218
)
 
$
(4,999
)
 
$
(863
)
 
$
(7,405
)
(Income) loss reclassified from AOCI into income (effective portion)
 
(86
)
 
456

 
109

 
810

 
 
 
 
 
 
 
 
 
Net other comprehensive loss
 
$
(2,304
)
 
$
(4,543
)
 
$
(754
)
 
$
(6,595
)
8.
FAIR VALUE
The Company estimates the fair value of its financial instruments using available market information and valuation methodologies it believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that the Company would realize upon disposition.

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Fair Value Measurements on a Recurring Basis
The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of June 30, 2017:
 
 
 
 
 
 
 
 
Total
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
June 30, 2017
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Derivative instruments
 

 
$
13,337

 

 
$
13,337

Total assets measured at fair value
 

 
$
13,337

 

 
$
13,337

 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Derivative instruments
 

 
$
14,091

 

 
$
14,091

Total assets measured at fair value
 

 
$
14,091

 

 
$
14,091

As of June 30, 2017, the Company had no financial instruments that were transferred among the fair value hierarchy levels. The Company also had no non-financial assets or liabilities that were required to be measured at fair value on a recurring basis.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Derivative Instruments. The derivative instruments are interest rate swaps. The interest rate swaps are standard cash flow hedges whose fair value is estimated using market-standard valuation models. Such models involve using market-based observable inputs, including interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements, which we have concluded are not material to the valuation. Due to the interest rate swaps being unique and not actively traded, the fair value is classified as Level 2. See “Note 7” above for further discussion of the Company’s derivative instruments.
Fair Value of Financial Instruments
As of June 30, 2017 and December 31, 2016, the fair values of cash and cash equivalents, restricted cash, tenant receivables, due from/to affiliates, accounts payable and accrued liabilities, and distributions payable approximate their carrying values due to the short-term nature of these instruments. The table below includes fair values for certain of the Company’s financial instruments for which it is practicable to estimate fair value. The carrying values and fair values of these financial instruments were as follows:
 
 
As of June 30, 2017
 
 As of December 31, 2016
 
 
Carrying
 
Fair
 
Carrying
 
Fair
(in thousands)
 
Value
 
Value
 
Value
 
Value
Assets
 
 
 
 
 
 
 
 
Derivative instruments
 
$
13,337

 
$
13,337

 
$
14,091

 
$
14,091

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Line of credit
 
107,000

 
107,000

 
181,000

 
181,000

Term loans
 
500,000

 
500,000

 
500,000

 
500,000

Mortgage notes
 
722,880

 
709,509

 
617,880

 
597,187

In addition to the previously described methods and assumptions for the derivative instruments, the following are the methods and assumptions used to estimate the fair value of the Company’s other financial instruments:
Line of Credit. The fair value of the line of credit is estimated using discounted cash flow methods based on the Company’s estimate of market interest rates, which the Company has determined to be its best estimate of current market spreads over comparable term benchmark rates of similar instruments. Credit spreads relating to the underlying instruments are based on Level 3 inputs.
Term Loans. The fair value of each of the term loans is estimated using discounted cash flow methods based on the Company’s estimate of market interest rates, which the Company has determined to be its best estimate of current market spreads over comparable term benchmark rates of similar instruments. Credit spreads relating to the underlying instruments are based on Level 3 inputs.

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Mortgage Notes. The fair value of each of the mortgage notes is estimated using discounted cash flow methods based on the Company’s estimate of market interest rates, which the Company has determined to be its best estimate of current market spreads over comparable term benchmark rates of similar instruments. Credit spreads relating to the underlying instruments are based on Level 3 inputs.
9.
STOCKHOLDERS’ EQUITY
Initial Public Offering
On September 27, 2012, the Company filed a registration statement with the SEC on Form S-11 in connection with its initial public offering of up to $2.0 billion in shares of common stock (the “Offering”). The registration statement was subsequently declared effective on July 24, 2013. Pursuant to its registration statement, the Company offered for sale up to $2.0 billion in shares of its common stock. Black Creek Capital Markets, LLC (formerly known as Dividend Capital Securities LLC, the “Dealer Manager”), a related party, provides dealer manager services in connection with the Offering.
On August 14, 2015, the Company filed a post-effective amendment to its registration statement that reclassified the Company’s common stock being offered pursuant to the registration statement into Class A shares and Class T shares. The SEC declared the post-effective amendment effective on August 19, 2015, at which time the Company offered for sale up to $1.5 billion in shares of common stock at a price of $10.4407 per Class A share and $9.8298 per Class T share, and up to $500.0 million in shares under the Company’s distribution reinvestment plan at a price of $9.9187 per Class A share and $9.8298 per Class T share. In each case, the offering price was arbitrarily determined by the Company’s board of directors by taking the Company’s estimated net asset value (“NAV”) as of June 30, 2015 of $9.24 per share and adding the respective per share up-front sales commissions, dealer manager fees and organization and offering expenses to be paid with respect to the Class A shares and the Class T shares, such that after the payment of such commissions, fees and expenses, the net proceeds to the Company will be the same for both Class A shares and Class T shares. The NAV was not subject to audit by the Company’s independent registered public accounting firm. The offering prices have been rounded to the nearest whole cent throughout the remainder of this report.
On December 22, 2016, the Company’s board of directors unanimously approved a new offering price of $11.0056 per Class A share of the Company’s common stock and a new offering price of $10.3617 per Class T share of the Company’s common stock, and $9.74 per share for shares purchased through the Company’s distribution reinvestment plan. In each case, the offering price was arbitrarily determined by the Company’s board of directors by taking the Company’s estimated NAV as of November 30, 2016 of $9.74 per share and adding the respective per share up-front sales commissions, dealer manager fees and organization and offering expenses to be paid with respect to the Class A shares and the Class T shares, such that after the payment of such commissions, fees and expenses, the net proceeds to the Company would be the same for both Class A shares and Class T shares. The NAV was not subject to audit by the Company’s independent registered public accounting firm. The new Class A offering price and the new Class T offering price took effect with respect to subscriptions accepted by the Company after January 1, 2017.

On June 30, 2017, the Company terminated the primary portion of the Offering. The Company is continuing to offer and sell shares pursuant to its distribution reinvestment plan. The Company may terminate its distribution reinvestment plan offering at any time.
The Class A shares and Class T shares have identical rights and privileges, including voting rights, but have differing fees that are payable on a class-specific basis, as described in “Note 11.” The per share amount of distributions on Class T shares will be lower than the per share amount of distributions on Class A shares because of the distribution fees payable with respect to Class T shares. The Company’s shares of common stock consist of Class A shares and Class T shares, all of which are collectively referred to herein as shares of common stock.

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A summary of the Company’s public offering (including shares sold through the primary offering and distribution reinvestment plan (“DRIP”)), as of June 30, 2017, is as follows:
(in thousands)
 
Class A
 
Class T
 
Total
Amount of gross proceeds raised:
 
 
 
 
 
 
Primary offering
 
$
1,014,668

 
$
664,373

 
$
1,679,041

DRIP
 
48,874

 
15,596

 
64,470

Total offering
 
$
1,063,542

 
$
679,969

 
$
1,743,511

 
 
 
 
 
 
 
Number of shares sold:
 
 
 
 
 
 
Primary offering
 
99,772

 
67,090

 
166,862

DRIP
 
4,983

 
1,594

 
6,577

Total offering
 
104,755

 
68,684

 
173,439

Common Stock
The following table summarizes the changes in the shares outstanding and the aggregate par value of the outstanding shares for each class of common stock for the periods presented below:
 
 
Class A
 
Class T
 
Total
(in thousands)
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
Balance as of December 31, 2016
 
99,374

 
$
994

 
58,032

 
$
580

 
157,406

 
$
1,574

Issuance of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
Primary shares
 
3,486

 
35

 
9,800

 
98

 
13,286

 
133

DRIP
 
1,418

 
14

 
812

 
8

 
2,230

 
22

Stock grants
 
151

 
2

 

 

 
151

 
2

Redemptions
 
(317
)
 
(3
)
 
(60
)
 
(1
)
 
(377
)
 
(4
)
Forfeitures
 

 

 

 

 

 

Balance as of June 30, 2017
 
104,112

 
$
1,042

 
68,584

 
$
685

 
172,696

 
$
1,727

Distributions
The following table summarizes the Company’s distribution activity (including distributions reinvested in shares of the Company’s common stock) for the quarters ended below:
 
 
 
 
Amount
(in thousands,
 
 
 
Declared per
 
Paid
 
Reinvested
 
Distribution
 
Gross
except per share data)
Payment Date
 
Common Share (1)
 
in Cash
 
in Shares
 
Fees (2)
 
Distributions (3)
2017
 
 
 
 
 
 
 
 
 
 
 
 
June 30
 
July 6, 2017
 
$
0.14250

 
$
10,358

 
$
11,859

 
$
1,630

 
$
23,847

March 31
 
April 5, 2017
 
0.14250

 
9,906

 
11,443

 
1,495

 
22,844

Total
 
 
 
 
 
$
20,264

 
$
23,302

 
$
3,125

 
$
46,691

2016
 
 
 
 
 
 
 
 
 
 
 
 
December 31
 
January 5, 2017
 
$
0.13515

 
$
8,840

 
$
10,271

 
$
1,286

 
$
20,397

September 30
 
October 5, 2016
 
0.13515

 
8,147

 
9,638

 
1,069

 
18,854

June 30
 
July 5, 2016
 
0.13515

 
7,534

 
9,042

 
876

 
17,452

March 31
 
April 4, 2016
 
0.13515

 
6,788

 
8,040

 
622

 
15,450

Total
 
 
 
 
 
$
31,309

 
$
36,991

 
$
3,853

 
$
72,153

 
(1)
Amounts reflect the quarterly distribution rate authorized by the Company’s board of directors per Class A share and per Class T share of common stock. The quarterly distribution on Class T shares of common stock is reduced by the distribution fees that are payable monthly with respect to such Class T shares (as calculated on a daily basis).
(2)
Distribution fees are paid monthly to the Dealer Manager with respect to Class T shares issued in the primary portion of the Initial Public Offering only. Refer to “Note 11” for further detail regarding distribution fees.
(3)
Gross distributions are total distributions before the deduction of distribution fees relating to Class T shares.

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Redemptions
The following table summarizes the Company’s redemption activity:
 
 
For the Six Months Ended
June 30,
(in thousands)
 
2017
 
2016
Number of eligible shares redeemed
 
769

 
169

Aggregate amount of shares redeemed
 
$
7,396

 
$
1,644

Average redemption price per share
 
$
9.62

 
$
9.71

10.
SHARE-BASED COMPENSATION
Restricted Stock Summary
A summary of the Company’s activity with respect to the issuance of restricted stock pursuant to its Equity Incentive Plan and its Private Placement Equity Incentive Plan for the six months ended June 30, 2017 is as follows:
 
 
 
 
Weighted-Average
 
 
 
 
Fair Value
(shares in thousands)
 
Shares
 
per Share
Nonvested shares at January 1, 2017 (1)
 
110

 
$
10.94

Granted (2)
 
151

 
$
11.01

Vested (3)
 
(69
)
 
$
10.90

Forfeited
 

 

Nonvested shares at June 30, 2017
 
192

 
$
11.01

 
(1)
Nonvested shares granted to non-senior executive employees of the Advisor were remeasured to estimated fair value based on the offering price of $11.01 per Class A share that took effect on January 1, 2017.
(2)
The weighted-average fair value is based on the offering price of $11.01 per Class A share in effect on the respective grant date.
(3)
Shares vested during the six months ended June 30, 2017 include: shares granted to the Company’s board of directors, which have an estimated fair value based on the offering price per Class A share in effect on the respective grant date, and shares granted to non-senior executive employees of the Advisor, which were remeasured as described above.
The following table summarizes other share-based compensation data:
 
 
For the Three Months Ended
June 30,
 
For the Six Months Ended
June 30,
(in thousands, except per share data)
 
2017
 
2016
 
2017
 
2016
Share-based compensation expense
 
$
264

 
$
177

 
$
737

 
$
566

Total fair value of restricted stock vested
 
$
140

 
$
144

 
$
756

 
$
494

Weighted-average grant date fair value of
 
 
 
 
 
 
 
 
restricted stock granted, per share (1)
 
$
11.01

 
$
10.44

 
$
11.01

 
$
10.44

 
(1)
The weighted-average grant date fair value is based on the offering price per Class A share in effect on the respective grant dates.
As of June 30, 2017, the aggregate unrecognized compensation expenses related to the restricted stock was approximately $1.5 million and is expected to be fully recognized over a weighted-average period of one year.
11.
RELATED PARTY TRANSACTIONS
The Company relies on the Advisor, a related party, to manage the Company’s day-to-day operating and acquisition activities and to implement the Company’s investment strategy pursuant to the terms of the fourth amended and restated advisory agreement, dated August 12, 2016, by and among the Company, the Operating Partnership, and the Advisor (the “Advisory Agreement”). The current term of the Advisory Agreement ends August 12, 2017, subject to renewals by the Company’s board of directors for an unlimited number of successive one-year periods. The Dealer Manager provides dealer manager services in

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connection with the Offering. The Sponsor, which owns the Advisor, is presently directly or indirectly majority owned by John A. Blumberg, James R. Mulvihill and Evan H. Zucker and/or their affiliates, and the Sponsor and the Advisor are jointly controlled by Messrs. Blumberg, Mulvihill and Zucker and/or their affiliates. The Dealer Manager is presently directly or indirectly majority owned, controlled and/or managed by Messrs. Blumberg, Mulvihill and/or Zucker and/or their affiliates. Mr. Zucker is the Chairman of our board of directors. The Advisor and the Dealer Manager receive compensation from the Company in the form of fees and expense reimbursements for certain services relating to the Offering and for the investment and management of the Company’s assets. The following summarizes these fees and expense reimbursements:
Sales Commissions. Sales commissions are payable to the Dealer Manager, all of which may be reallowed to participating unaffiliated broker dealers, and are equal to up to 7.0% and 2.0% of the gross proceeds from the sale of Class A shares and Class T shares, respectively, in the primary offering.
Dealer Manager Fees. Dealer manager fees are payable to the Dealer Manager, a portion of which may be reallowed to unaffiliated participating broker dealers, and are equal to up to 2.5% and 2.0% of the gross proceeds from the sale of Class A shares and Class T shares, respectively, in the primary offering.
Distribution Fees. Distribution fees are payable to the Dealer Manager with respect to Class T shares issued in the primary portion of the Offering only. All or a portion of the distribution fees are typically reallowed or advanced by the Dealer Manager to unaffiliated participating broker dealers or broker dealers servicing accounts of investors who own Class T shares, referred to as servicing broker dealers. The distribution fees accrue daily, are payable monthly in arrears and will be paid on a continuous basis from year to year. The distribution fees are calculated on outstanding Class T shares issued in the primary offering in an amount equal to 1.0% per annum of (i) the current gross offering price per Class T share, or (ii) if the Company is no longer offering shares in a public offering, the estimated per share value of Class T shares. If the Company is no longer offering shares in a public offering, but has not reported an estimated per share value subsequent to the termination of the Offering, which is the case as of the date of this report, then the gross offering price in effect immediately prior to the termination of the Offering will be deemed the estimated per share value for purposes of the prior sentence. If the Company reports an estimated per share value prior to the termination of the Offering, the distribution fee will continue to be calculated as a percentage of the then current gross offering price per Class T share until the Company reports an estimated per share value following the termination of the Offering, at which point the distribution fee will be calculated based on the new estimated per share value. In the event an estimated per share value reported after termination of the Offering changes, the distribution fee will change immediately with respect to all outstanding Class T shares issued in the primary offering, and will be calculated based on the new gross offering price or the new estimated per share value, without regard to the actual price at which a particular Class T share was issued.
All shares of a particular class will receive the same quarterly per share distribution, including shares issued pursuant to the Company’s distribution reinvestment plan. The quarterly distributions paid with respect to all outstanding Class T shares will be reduced by the monthly distribution fees calculated with respect to Class T shares issued in the primary offering. The Company does not pay distribution fees with respect to the sale of shares issued pursuant to the Company’s distribution reinvestment plan or shares issued as stock dividends, although the amount of distribution fees payable with respect to Class T shares sold in its primary offering will be allocated among all Class T shares, including shares issued pursuant to the Company’s distribution reinvestment plan and those issued as stock dividends, if any. The Company will cease paying distribution fees with respect to all Class T shares on the earliest to occur of the following: (i) a listing of shares of the Company’s common stock on a national securities exchange; (ii) such Class T shares no longer being outstanding; (iii) the Dealer Manager’s determination that total underwriting compensation from all sources, including dealer manager fees, sales commissions, distribution fees and any other underwriting compensation paid to participating broker dealers with respect to all Class A shares and Class T shares would be in excess of 10% of the gross proceeds of the primary portion of the Offering; or (iv) the end of the month in which the transfer agent, on behalf of the Company, determines that total underwriting compensation, including dealer manager fees, sales commissions, and distribution fees with respect to the Class T shares held by a stockholder within his or her particular account, would be in excess of 10% of the total gross investment amount at the time of purchase of the primary Class T shares held in such account.
Acquisition Fees. Acquisition fees are payable to the Advisor in connection with the acquisition of real property, and will vary depending on whether the Advisor provides development services or development oversight services, each as described below, in connection with the acquisition (including, but not limited to, forward commitment acquisitions) or stabilization (including, but not limited to, development and value-add transactions) of such real property, or both. The Company refers to such properties for which the Advisor provides development services or development oversight services as development real properties. For each real property acquired for which the Advisor does not provide development services or development oversight services, the acquisition fee is an amount equal to 2.0% of the total purchase price of the properties acquired (or the Company’s proportional interest therein), including in all instances real property held in joint ventures or co-ownership

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arrangements. In connection with providing services related to the development, construction, improvement or stabilization, including tenant improvements of development real properties, which the Company refers to collectively as development services, or overseeing the provision of these services by third parties on the Company’s behalf, which the Company refers to as development oversight services, the acquisition fee, which the Company refers to as the development acquisition fee, will equal up to 4.0% of total project cost, including debt, whether borrowed or assumed (or the Company’s proportional interest therein with respect to real properties held in joint ventures or co-ownership arrangements). If the Advisor engages a third party to provide development services directly to the Company, the third party will be compensated directly by the Company and the Advisor will receive the development acquisition fee if it provides the development oversight services. With respect to an acquisition of an interest in a real estate-related entity, the acquisition fee will equal (i) 2.0% of the Company’s proportionate share of the purchase price of the property owned by any real estate-related entity in which the Company acquires a majority economic interest or that the Company consolidates for financial reporting purposes in accordance with GAAP, and (ii) 2.0% of the purchase price in connection with the acquisition of any interest in any other real estate-related entity. In addition, the Advisor is entitled to receive an acquisition fee of 1.0% of the purchase price, including any third-party expenses related to such investment, in connection with the acquisition or origination of any type of debt investment or other investment.
Asset Management Fees. Asset management fees consist of (i) a monthly fee of one-twelfth of 0.80% of the aggregate cost (including debt, whether borrowed or assumed, and before non-cash reserves, depreciation and amortization expenses and acquisition fees paid to the Advisor) of each real property asset within the Company’s portfolio (or the Company’s proportional interest therein with respect to real property held in joint ventures, co-ownership arrangements or real estate-related entities in which the Company owns a majority economic interest or that the Company consolidates for financial reporting purposes in accordance with GAAP), provided, that the monthly asset management fee with respect to each real property asset located outside the U.S. that the Company owns, directly or indirectly, will be one-twelfth of 1.20% of the aggregate cost (including debt, whether borrowed or assumed, and before non-cash reserves, depreciation and amortization expenses and acquisition fees paid to the Advisor) of such real property asset; (ii) a monthly fee of one-twelfth of 0.80% of the aggregate cost or investment (before non-cash reserves, depreciation and amortization expenses and acquisition fees paid to the Advisor, as applicable) of any interest in any other real estate-related entity or any type of debt investment or other investment; and (iii) with respect to a disposition, a fee equal to 2.5% of the total consideration paid in connection with the disposition, calculated in accordance with the terms of the Advisory Agreement. The term “disposition” shall include: (i) a sale of one or more assets; (ii) a sale of one or more assets effectuated either directly or indirectly through the sale of any entity owning such assets, including, without limitation, the Company or the Operating Partnership; (iii) a sale, merger, or other transaction in which the stockholders either receive, or have the option to receive, cash, securities redeemable for cash, and/or securities of a publicly traded company; or (iv) a listing of the Company’s common stock on a national securities exchange or the receipt by the Company’s stockholders of securities that are listed on a national securities exchange in exchange for the Company’s common stock.

Organization and Offering Expenses. The Company reimburses the Advisor or its affiliates for cumulative organization expenses and for cumulative expenses of its public offerings up to 2.0% of the aggregate gross offering proceeds from the sale of shares in its public offerings. The Advisor or an affiliate of the Advisor is responsible for the payment of the Company’s cumulative organization expenses and offering expenses to the extent that such cumulative expenses exceed the 2.0% organization and offering expense reimbursement for the Company’s public offerings, without recourse against or reimbursement by the Company. Organization and offering expenses are accrued by the Company only to the extent that the Company is successful in raising gross offering proceeds. If the Company does not raise additional amounts of offering proceeds, no additional amounts will be payable by the Company to the Advisor for reimbursement of cumulative organization and offering expenses. Organization costs are expensed in the period they become reimbursable and offering costs are recorded as a reduction of gross offering proceeds in additional paid-in capital.
Other Expense Reimbursements. In addition to the reimbursement of organization and offering expenses, provided that the Advisor will not be reimbursed for costs of personnel to the extent that such personnel perform services for which the Advisor receives a separate fee, the Company is obligated, subject to certain limitations, to reimburse the Advisor for all of the costs it incurs in connection with the services it provides to the Company, including, without limitation, personnel (and related employment) costs and overhead (including, but not limited to, allocated rent paid to both third parties and an affiliate of the Advisor, equipment, utilities, insurance, travel and entertainment, and other costs) incurred by the Advisor or its affiliates, including, but not limited to, total compensation, benefits and other overhead of all employees involved in the performance of such services. The Advisor may utilize its employees to provide such services and in certain instances those employees may include the Company’s executive officers.

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The table below summarizes the fees and expenses incurred by the Company for services provided by the Advisor and its affiliates, and by the Dealer Manager related to the services described above, and any related amounts payable:
 
 
Incurred
 
 
 
 
 
 
For the Three Months Ended
June 30,
 
For the Six Months Ended
June 30,
 
Payable as of
 
 
 
 
June 30,
2017
 
December 31,
2016
(in thousands)
 
2017
 
2016
 
2017
 
2016
 
 
Expensed:
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition fees (1)
 
$

 
$
10,019

 
$

 
$
17,148

 
$

 
$

Asset management fees (2)
 
5,503

 
4,146

 
10,886

 
7,541

 
73

 
1,745

Asset management fees
 
 
 
 
 
 
 
 
 
 
 
 
   related to dispositions (3)
 

 

 
409

 
1,466

 

 
1,015

Other expense reimbursements (4)
 
1,090

 
697

 
2,261

 
1,587

 
305

 
383

Total
 
$
6,593

 
$
14,862

 
$
13,556

 
$
27,742

 
$
378

 
$
3,143

 
 
 
 
 
 
 
 
 
 
 
 
 
Capitalized:
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition fees (1)
 
$
1,080

 
$

 
$
3,042

 
$

 
$
196

 
$

Development acquisition fees (5)
 
29

 
39

 
71

 
155

 

 
14

Total
 
$
1,109

 
$
39

 
$
3,113

 
$
155

 
$
196

 
$
14

 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-In Capital:
 
 
 
 
 
 
 
 
 
 
 
 
Sales commissions
 
$
2,606

 
$
3,230

 
$
4,269

 
$
9,988

 
$
225

 
$

Dealer manager fees
 
1,785

 
2,192

 
2,883

 
6,363

 
304

 
1

Offering costs
 
1,856

 
2,015

 
3,731

 
4,585

 
746

 
984

Distribution fees (6)
 
3,587

 
20,653

 
5,544

 
21,275

 
29,926

 
27,419

Total
 
$
9,834

 
$
28,090

 
$
16,427

 
$
42,211

 
$
31,201

 
$
28,404

 
(1)
See “Note 1” for detail on the new accounting standard we adopted effective January 1, 2017 and “Note 2” for a description of the accounting policy regarding acquisition costs.
(2)
Includes asset management fees other than asset management fees related to dispositions.
(3)
Fees are netted against the respective gain and are included in the related net gain amount on the condensed consolidated statements of operations.
(4)
Other expense reimbursements include certain expenses incurred in connection with the services provided to the Company under the Advisory Agreement. These reimbursements include a portion of compensation expenses of individual employees of the Advisor, including certain of the Company’s named executive officers, of the Advisor related to activities for which the Advisor does not otherwise receive a separate fee. The Company reimbursed the Advisor approximately $1.0 million and $0.7 million for the three months ended June 30, 2017 and 2016, respectively, and $2.2 million and $1.5 million for the six months ended June 30, 2017 and 2016, respectively, for such compensation expenses. The remaining amount of other expense reimbursements relate to other general overhead and administrative expenses including, but not limited to, allocated rent paid to both third parties and affiliates of the Advisor, equipment, utilities, insurance, travel and entertainment.
(5)
Development acquisition fees are included in the total development project costs of the respective properties and are capitalized in construction in progress, which is included in net investment in real estate properties on the Company’s condensed consolidated balance sheets.
(6)
The distribution fees accrue daily and are payable monthly in arrears. As of June 30, 2017, the monthly amount of distribution fees payable of $0.6 million is included in distributions payable on the condensed consolidated balance sheets. Additionally, the Company accrues for future estimated amounts payable based on the shares outstanding as of the balance sheet date. As of June 30, 2017, the future estimated amounts payable of $29.4 million are included in due to affiliates on the condensed consolidated balance sheets.

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Joint Ventures. Both the BTC I Partnership and the BTC II Partnership (described in “Note 6”) pay fees to the Advisor and/or a wholly-owned subsidiary of the Advisor for providing advisory services to both joint ventures. These advisory services include acquisition and asset management services and, to the extent applicable, development management and development oversight services. For the three and six months ended June 30, 2017 the joint ventures incurred in aggregate approximately $1.7 million and $2.5 million, respectively, in acquisition and asset management fees, which were paid to the Advisor and its wholly-owned subsidiary pursuant to the respective service agreements, as compared to $0.7 million and $1.2 million, respectively, for the three and six months ended June 30, 2016. Additionally, as of June 30, 2017, the joint ventures had amounts payable to the Company of approximately $1.3 million, which were recorded in due from affiliates on the condensed consolidated balance sheets.
Expense Support Agreement
In October 2013, the Company entered into an Expense Support and Conditional Reimbursement Agreement (as amended, the “Expense Support Agreement”) with the Operating Partnership and the Advisor. Pursuant to the Expense Support Agreement, the Advisor has agreed to defer payment of all or a portion of the asset management fee otherwise payable to it pursuant to the Advisory Agreement if Company-defined funds from operations (“CDFFO” or “Company-defined FFO”), as disclosed in the Company’s quarterly and annual reports, for a particular quarter is less than the aggregate distributions that would have been declared for such quarter assuming daily distributions at a specified quarterly rate per share of common stock (the “Baseline Distributions”). Baseline Distributions were equal to: $0.11250 per share from January 1 through June 30, 2014; $0.11875 per share from July 1 through September 30, 2014; and $0.1250 per share from October 1, 2014 through June 30, 2015. In addition, pursuant to the Expense Support Agreement that was in effect through June 30, 2015, prior to the amendment and restatement of the agreement as described below, the Advisor, in its sole discretion, could elect to fund certain expenses of the Company and the Operating Partnership as expense support payments. Subject to certain conditions and limitations, the Advisor is entitled to reimbursement from the Company for any asset management fees that were deferred and any expense support payments that it made pursuant to the agreement that was in effect through June 30, 2015.
The Expense Support Agreement was amended and restated on August 14, 2015, effective from July 1, 2015 through June 30, 2018. Pursuant to the amended and restated Expense Support Agreement, for the period from July 1, 2015 through June 30, 2018, Baseline Distributions means the aggregate distributions that are declared on the Company’s common stock in accordance with the quarterly distribution rate for such quarter; provided that for purposes of calculating the amount of payment by the Advisor pursuant to the agreement, such amount will not exceed the amount that would have been declared on shares of the Company’s common stock assuming a quarterly distribution rate of $0.13515 per share (which is the rate that the Company’s board of directors authorized for the fourth quarter of 2015 and each quarter of 2016 with respect to the Company’s Class A shares and the Company’s Class T shares (less the annual distribution fees that are payable monthly with respect to such Class T shares, as calculated on a daily basis)). Starting with any asset management fees waived pursuant to the agreement on or after July 1, 2015, the Advisor will not be entitled to reimbursement from the Company.
In addition, beginning on July 1, 2015 and ending upon the termination or expiration of the agreement, if, in a given calendar quarter, the Company’s CDFFO is less than the Baseline Distributions for such quarter, and the waived asset management fee is not sufficient to satisfy the shortfall for such quarter (a “Deficiency”), the Advisor will be required to fund certain expenses of the Company or the Operating Partnership in an amount equal to such Deficiency. Starting with any such payments made by the Advisor on or after July 1, 2015 to cover a Deficiency, the Advisor is not entitled to reimbursement from the Company. The Expense Support Agreement, as amended, will govern all waivers and payments made by the Advisor from July 1, 2015 through the second quarter of 2018. The Advisor still will be entitled to reimbursement of amounts owed to it by the Company prior to July 1, 2015 pursuant to the prior versions of the agreement in accordance with the terms thereof.
For the period beginning on July 1, 2015 and terminating on the earlier of the expiration or termination of the agreement, in no event will the aggregate of the waived asset management fees and the Deficiency support payments, when added to all amounts deferred or paid by the Advisor prior to August 14, 2015 under the prior versions of the Expense Support Agreement (approximately $5.4 million), exceed $30.0 million (the “Maximum Amount”). As of June 30, 2017, the aggregate amount paid by the Advisor pursuant to the Expense Support Agreement was $7.4 million. Of this amount, the Company has fully reimbursed the $5.4 million that was potentially reimbursable to the Advisor, and there are no additional amounts reimbursable to the Advisor under the Expense Support Agreement.
Although the Expense Support Agreement has an effective term through June 30, 2018, it may be terminated prior thereto without cause or penalty by a majority of the Company’s independent directors upon 30 days’ written notice to the Advisor. In addition, the Advisor’s obligations under the Expense Support Agreement will immediately terminate upon the earlier to occur of (i) the termination or non-renewal of the Advisory Agreement, (ii) the delivery by the Company of notice to the Advisor of the Company’s intention to terminate or not renew the Advisory Agreement, (iii) the Company’s completion of a liquidity event

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or (iv) the time the Advisor has deferred, waived or paid the Maximum Amount. Except with respect to the early termination events described above, any obligation of the Advisor to make payments under the Expense Support Agreement with respect to the calendar quarter ending