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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 March 31, 2018
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 May 7, 2018, there were 105,488,845 shares of the registrant’s Class A common stock and 70,715,499 shares of the registrant’s Class T 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)
 
March 31, 2018
 
December 31, 2017
 
 
(unaudited)
 
 
ASSETS
 
 
 
 
Net investment in real estate properties
 
$
2,703,732

 
$
2,706,344

Investment in unconsolidated joint ventures
 
106,815

 
106,631

Cash and cash equivalents
 
9,199

 
5,397

Restricted cash
 
65

 
65

Straight-line and tenant receivables, net
 
24,819

 
23,643

Due from affiliates
 
888

 
907

Other assets
 
25,783

 
22,560

Total assets
 
$
2,871,301

 
$
2,865,547

LIABILITIES AND EQUITY
 
 
 
 
Liabilities
 
 
 
 
Accounts payable and accrued liabilities
 
$
20,097

 
$
21,668

Debt, net
 
1,512,725

 
1,489,145

Due to affiliates
 
24,924

 
26,641

Distributions payable
 
23,814

 
23,757

Other liabilities
 
46,607

 
44,866

Total liabilities
 
1,628,167

 
1,606,077

Commitments and contingencies (Note 9)
 

 

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, 105,404 shares and 104,589 shares issued and outstanding, respectively
 
1,054

 
1,046

Class T common stock, $0.01 par value per share - 600,000 shares authorized, 70,367 shares and 69,925 shares issued and outstanding, respectively
 
704

 
699

Additional paid-in capital
 
1,568,024

 
1,561,749

Accumulated deficit
 
(348,505
)
 
(320,897
)
Accumulated other comprehensive income
 
21,856

 
16,872

Total stockholders' equity
 
1,243,133

 
1,259,469

Noncontrolling interests
 
1

 
1

Total equity
 
1,243,134

 
1,259,470

Total liabilities and equity
 
$
2,871,301

 
$
2,865,547

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
March 31,
(in thousands, except per share data)
 
2018
 
2017
Revenues:
 
 
 
 
Rental revenues
 
$
58,894

 
$
54,572

Total revenues
 
58,894

 
54,572

Operating expenses:
 
 
 
 
Rental expenses
 
15,806

 
14,521

Real estate-related depreciation and amortization
 
27,871

 
27,523

General and administrative expenses
 
2,853

 
2,242

Asset management fees, related party
 
6,165

 
5,383

Total operating expenses
 
52,695

 
49,669

Operating income
 
6,199

 
4,903

Other expenses (income):
 
 
 
 
Equity in (income) loss of unconsolidated joint ventures
 
(1,053
)
 
29

Interest expense and other
 
11,682

 
10,018

Net loss (gain) on disposition of real estate properties
 

 
(75
)
Total other expenses
 
10,629

 
9,972

Net loss
 
(4,430
)
 
(5,069
)
Net income attributable to noncontrolling interests
 

 
(16
)
Net loss attributable to common stockholders
 
$
(4,430
)
 
$
(5,085
)
Weighted-average shares outstanding
 
175,565

 
160,296

Net loss per common share - basic and diluted
 
$
(0.03
)
 
$
(0.03
)
See accompanying Notes to Condensed Consolidated Financial Statements.


2

Table of Contents

INDUSTRIAL PROPERTY TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
 
For the Three Months Ended
March 31,
(in thousands)
 
2018
 
2017
Net loss attributable to common stockholders
 
$
(4,430
)
 
$
(5,085
)
Unrealized gain on derivative instruments, net
 
4,984

 
1,550

Comprehensive income (loss) attributable to common stockholders
 
$
554

 
$
(3,535
)
See accompanying Notes to Condensed Consolidated Financial Statements.

3

Table of Contents

INDUSTRIAL PROPERTY TRUST INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
 
 
 
Stockholders' Equity
 
 
 
 
 
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income
 
Noncontrolling Interests
 
Total
(in thousands)
 
Shares
 
Amount
 
 
 
 
 
Balance as of December 31, 2017
 
174,514

 
$
1,745

 
$
1,561,749

 
$
(320,897
)
 
$
16,872

 
$
1

 
$
1,259,470

Net loss
 

 

 

 
(4,430
)
 

 

 
(4,430
)
Unrealized gain on derivative instruments
 

 

 

 

 
4,984

 

 
4,984

Issuance of common stock
 
1,257

 
13

 
12,208

 

 

 

 
12,221

Share-based compensation
 

 

 
562

 

 

 

 
562

Upfront offering costs
 

 

 
(104
)
 

 

 

 
(104
)
Trailing offering costs, consisting of distribution fees
 

 

 
(19
)
 
1,845

 

 

 
1,826

Redemptions of common stock
 

 

 
(6,372
)
 

 

 

 
(6,372
)
Distributions on common stock
 

 

 

 
(25,023
)
 

 

 
(25,023
)
Balance as of March 31, 2018
 
175,771

 
1,758

 
1,568,024

 
(348,505
)
 
21,856

 
1

 
1,243,134

See accompanying Notes to Condensed Consolidated Financial Statements.

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INDUSTRIAL PROPERTY TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
For the Three Months Ended
March 31,
(in thousands)
 
2018
 
2017
Operating activities:
 
 
 
 
Net loss
 
$
(4,430
)
 
$
(5,069
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Real estate-related depreciation and amortization
 
27,871

 
27,523

Equity in (income) loss of unconsolidated joint ventures
 
(1,053
)
 
29

Straight-line rent and amortization of above- and below-market leases
 
(2,515
)
 
(3,388
)
Net gain on disposition of real estate properties
 

 
(75
)
Other
 
1,200

 
1,025

Changes in operating assets and liabilities:
 
 
 
 
Tenant receivables and other assets
 
2,017

 
918

Accounts payable, accrued expenses and other liabilities
 
(1,198
)
 
926

Due from / to affiliates, net
 
409

 
(1,717
)
Net cash provided by operating activities
 
22,301

 
20,172

Investing activities:
 
 
 
 
Real estate acquisitions
 
(16,271
)
 
(95,518
)
Acquisition deposits
 
(350
)
 
(350
)
Proceeds from the disposition of real estate properties
 

 
15,427

Capital expenditures and development activities
 
(8,072
)
 
(10,800
)
Investment in unconsolidated joint ventures
 
(3,383
)
 
(3,994
)
Net proceeds from sale of joint venture ownership interest
 
4,235

 

Net cash used in investing activities
 
(23,841
)
 
(95,235
)
Financing activities:
 
 
 
 
Proceeds from line of credit
 
42,000

 
93,000

Repayments of line of credit
 
(19,000
)
 
(52,000
)
Proceeds from mortgage note
 

 

Financing costs paid
 

 
(1,116
)
Proceeds from issuance of common stock
 

 
50,217

Offering costs paid upon issuance of common stock
 
(184
)
 
(3,889
)
Distributions paid to common stockholders
 
(10,923
)
 
(8,840
)
Dividends paid on noncontrolling interests
 

 

Distribution fees paid
 
(1,822
)
 
(1,436
)
Redemptions of common stock
 
(4,729
)
 
(2,495
)
Net cash provided by financing activities
 
5,342

 
73,441

Net increase (decrease) in cash, cash equivalents and restricted cash
 
3,802

 
(1,622
)
Cash, cash equivalents and restricted cash, at beginning of period
 
5,462

 
8,438

Cash, cash equivalents and restricted cash, at end of period
 
$
9,264

 
$
6,816


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, 2017, filed with the SEC on March 9, 2018 (“2017 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 May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which provides guidance for revenue recognition and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition.” The standard is based on the principle that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The guidance specifically excludes revenue derived from lease contracts from its scope. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The effective date for the standard is for annual reporting periods beginning after December 15, 2017 and interim periods therein. We adopted the standard when it became effective for us, as of the reporting period beginning January 1, 2018. We elected the package of practical expedients, and accordingly did not reallocate contract consideration to lease components within the scope of the existing lease guidance when we adopted ASU 2014-09. The adoption of ASU 2014-09 did not have a significant impact on our condensed consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”), which requires: (i) all equity investments to be measured at fair value with changes in fair value recognized in net income; (ii) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and (iii) eliminates the requirement for public entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. ASU 2016-01 is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted for the accounting guidance on financial liabilities under the fair value option. The Company adopted this guidance effective January 1, 2018. The adoption of this guidance did not have a significant impact on the Company’s condensed consolidated financial statements.

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Table of Contents

2. INVESTMENT IN REAL ESTATE PROPERTIES
As of March 31, 2018 and December 31, 2017, the Company’s consolidated investment in real estate properties consisted of 236 and 235 industrial buildings, respectively.
 
 
As of
(in thousands)
 
March 31, 2018
 
December 31, 2017
Land
 
$
783,105

 
$
771,613

Building and improvements
 
1,930,289

 
1,919,580

Intangible lease assets
 
242,428

 
239,190

Construction in progress
 
14,284

 
14,002

Investment in real estate properties
 
2,970,106

 
2,944,385

Less accumulated depreciation and amortization
 
(266,374
)
 
(238,041
)
Net investment in real estate properties
 
$
2,703,732

 
$
2,706,344

Intangible Lease Assets and Liabilities
Intangible lease assets and liabilities, as of March 31, 2018 and December 31, 2017, include the following:
 
 
As of March 31, 2018
 
As of December 31, 2017
(in thousands)
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Intangible lease assets (1)
 
$
231,160

 
$
(114,412
)
 
$
116,748

 
$
227,922

 
$
(103,979
)
 
$
123,943

Above-market lease assets (1)
 
11,268

 
(5,691
)
 
5,577

 
11,268

 
(5,212
)
 
6,056

Below-market lease liabilities (2)
 
(33,377
)
 
15,186

 
(18,191
)
 
(33,278
)
 
13,755

 
(19,523
)
 
(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.
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
March 31,
(in thousands)
 
2018
 
2017
Increase (Decrease) to Rental Revenue:
 
 
 
 
Straight-line rent adjustments
 
$
1,562

 
$
2,352

Above-market lease amortization
 
(478
)
 
(569
)
Below-market lease amortization
 
1,431

 
1,605

Real Estate-Related Depreciation and Amortization:
 
 
 
 
Depreciation expense
 
$
17,421

 
$
15,449

Intangible lease asset amortization
 
10,450

 
12,074


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3. 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 its 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
Joint Ventures as of
 
 
March 31, 2018
 
December 31, 2017
 
($ in thousands)
 
Ownership Percentage
 
Number of Buildings
 
Ownership Percentage
 
Number of Buildings
 
March 31,
2018
 
December 31, 2017
BTC I Partnership
 
20.0%
 
35
 
20.0%
 
33
 
$
99,757

 
$
97,359

BTC II Partnership (1)
 
8.0%
 
11
 
13.0%
 
10
 
7,058

 
9,272

Total joint ventures
 
 
 
46
 
 
 
43
 
$
106,815

 
$
106,631

 
(1)
On January 31, 2018, the Company sold and assigned a 5.0% portion of its ownership interest in the BTC II Partnership for a purchase price equal to approximately $4.2 million.
The following is a summary of certain financial data of the BTC I Partnership:
 
 
For the Three Months Ended
March 31,
(in thousands)
 
2018
 
2017
Operating data:
 
 
 
 
Total revenues
 
$
10,967

 
$
6,360

Total operating expenses
 
8,544

 
6,080

Total other income
 
3,807

 
(266
)
Net income
 
6,230

 
14

 
 
 
 
 
 
 
As of
(in thousands)
 
March 31, 2018
 
December 31, 2017
Balance sheet data:
 
 
 
 
Net investment in properties
 
$
850,427

 
$
813,899

Cash and cash equivalents
 
11,197

 
14,651

Total assets
 
897,514

 
839,697

Debt
 
365,483

 
319,321

Total liabilities
 
404,349

 
356,758

Partners’ capital
 
493,165

 
482,939



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4. DEBT
The Company’s consolidated indebtedness is currently comprised of borrowings under its line of credit, term loans and 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)
 
March 31, 2018
 
December 31, 2017
 
Maturity Date
 
March 31, 2018
 
December 31, 2017
Line of credit (1)
 
2.86%
 
2.81%
 
January 2020
 
$
298,000

 
$
275,000

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

 
350,000

Term loan (3)
 
3.63%
 
3.46%
 
May 2022
 
150,000

 
150,000

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

 
722,880

Total principal amount / weighted-average (5)
 
3.09%
 
3.10%
 
 
 
$
1,520,880

 
$
1,497,880

Less unamortized debt issuance costs
 
 
 
 
 
 
 
$
(8,155
)
 
$
(8,735
)
Total debt, net
 
 
 
 
 
 
 
$
1,512,725

 
$
1,489,145

 
 
 
 
 
 
 
 
 
 
 
Gross book value of properties encumbered by debt
 
 
 
 
 
$
1,154,608

 
$
1,153,150

 
(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 $150.0 million in borrowings under this line of credit. As of March 31, 2018, the unused and available portions under the line of credit were both $202.0 million. 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. 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 March 31, 2018 and December 31, 2017. The assets and credit of each of the Company’s consolidated properties pledged as collateral for the Company’s mortgage notes are not available to satisfy the Company’s other debt and obligations, unless the Company first satisfies the mortgage notes payable on the respective underlying properties.
(5)
The weighted-average remaining term of the Company’s consolidated debt was approximately 4.3 years as of March 31, 2018, excluding any extension options on the line of credit.

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As of March 31, 2018, 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 2018
 
$

 
$

 
$
1,354

 
$
1,354

2019
 

 

 
2,191

 
2,191

2020
 
298,000

 

 
15,259

 
313,259

2021
 

 
350,000

 
6,047

 
356,047

2022
 

 
150,000

 
83,579

 
233,579

Thereafter
 

 

 
614,450

 
614,450

Total principal payments
 
$
298,000

 
$
500,000

 
$
722,880

 
$
1,520,880

 
(1)
The term of the line of credit may be extended pursuant to a one-year extension option, subject to certain conditions.
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 March 31, 2018.
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 March 31, 2018, 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 months ended March 31, 2018 and 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
Amount
 
Balance Sheet
Location
 
March 31,
2018
 
December 31,
2017
(in thousands)
 
 
 
 
Interest rate swaps
 
$
596,980

 
Other assets
 
$
21,856

 
$
16,872


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Table of Contents

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 March 31,
(in thousands)
 
2018
 
2017
Interest rate swaps:
 
 
 
 
Income recognized in AOCI (effective portion)
 
$
5,792

 
$
1,355

(Income) loss reclassified from AOCI into income (effective portion)
 
(808
)
 
195

Net other comprehensive income
 
$
4,984

 
$
1,550

5. 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.
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 March 31, 2018:
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total Fair
Value
March 31, 2018
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Derivative instruments
 
$

 
$
21,856

 
$

 
$
21,856

Total assets measured at fair value
 
$

 
$
21,856

 
$

 
$
21,856

December 31, 2017
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Derivative instruments
 
$

 
$
16,872

 
$

 
$
16,872

Total assets measured at fair value
 
$

 
$
16,872

 
$

 
$
16,872

As of March 31, 2018, 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 4” above for further discussion of the Company’s derivative instruments.

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Nonrecurring Fair Value of Financial Measurements
As of March 31, 2018 and December 31, 2017, 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 March 31, 2018
 
 As of December 31, 2017
(in thousands)
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Liabilities
 
 
 
 
 
 
 
 
Line of credit
 
298,000

 
298,000

 
275,000

 
275,000

Term loans
 
500,000

 
500,000

 
500,000

 
500,000

Mortgage notes
 
722,880

 
699,129

 
722,880

 
708,615

6. STOCKHOLDERS’ EQUITY
Distribution Reinvestment Plan Offering
The Company is continuing to offer and sell shares pursuant to its distribution reinvestment plan, which it may amend or terminate at any time, in its sole discretion. The Company has registered $311.9 million in shares of its common stock to be sold pursuant to its distribution reinvestment plan and is offering the shares at a price equal to the net asset value (“NAV”) per share most recently disclosed by the Company, which is presently $11.11 per share. As of March 31, 2018, $287.4 million in shares remained available for sale pursuant to the Company’s distribution reinvestment plan.
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:
(in thousands)
 
Class A
Shares
 
Class T
Shares
 
Total
Shares
Balance as of December 31, 2017
 
104,589

 
69,925

 
174,514

Issuance of common stock:
 
 
 
 
 
 
Primary shares
 

 

 

DRIP
 
658

 
442

 
1,100

Stock grants
 
162

 

 
162

Redemptions
 

 

 

Forfeitures
 
(5
)
 

 
(5
)
Balance as of March 31, 2018
 
105,404

 
70,367

 
175,771


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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, except per share data)
 
Declared per Common Share (1)
 
Paid in Cash
 
Reinvested in Shares
 
Distribution Fees (2)
 
Gross Distributions (3)
2018
 
 
 
 
 
 
 
 
 
 
March 31
 
$
0.1425

 
$
11,102

 
$
12,076

 
$
1,845

 
$
25,023

Total
 
 
 
$
11,102

 
$
12,076

 
$
1,845

 
$
25,023

2017
 
 
 
 
 
 
 
 
 
 
December 31
 
$
0.1425

 
$
10,923

 
$
12,222

 
$
1,781

 
$
24,926

September 30
 
0.1425

 
10,820

 
12,242

 
1,764

 
24,826

June 30
 
0.1425

 
10,349

 
11,868

 
1,630

 
23,847

March 31
 
0.1425

 
9,902

 
11,447

 
1,495

 
22,844

Total
 
 
 
$
41,994

 
$
47,779

 
$
6,670

 
$
96,443

 
(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.
(3)
Gross distributions are total distributions before the deduction of distribution fees relating to Class T shares.

Redemptions
The following table summarizes the Company’s redemption activity for the periods presented below:
 
 
For the Three Months Ended
March 31,
(in thousands)
 
2018
 
2017
Number of eligible shares redeemed
 
651

 
377

Aggregate amount of shares redeemed
 
$
6,372

 
$
3,611

Average redemption price per share
 
$
9.79

 
$
9.58


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7. RELATED PARTY TRANSACTIONS
The table below summarizes the fees and expenses incurred by the Company for services provided by Industrial Property Advisors LLC (the “Advisor”) and its affiliates, and by the Black Creek Capital Markets, LLC (the “Dealer Manager”) related to the services the Dealer Manager provided in connection with the Company’s initial public offering, and any related amounts payable:
 
 
For the Three Months Ended
March 31,
 
Payable as of
 
 
 
March 31,
2018
 
December 31,
2017
(in thousands)
 
2018
 
2017
 
 
Expensed:
 
 
 
 
 
 
 
 
Asset management fees
 
$
5,959

 
$
5,383

 
$
75

 
54

Asset management fees related to dispositions (1)
 
206

 
409

 
100

 

Other expense reimbursements (2)
 
1,411

 
1,171

 
59

 
605

Total
 
$
7,576

 
$
6,963

 
$
234

 
$
659

Capitalized:
 
 
 
 
 
 
 
 
Acquisition fees
 
$
259

 
$
1,962

 
$

 
$
132

Development acquisition fees
 
447

 
42

 
193

 
98

Total
 
$
706

 
$
2,004

 
$
193

 
$
230

Additional Paid-In Capital:
 
 
 
 
 
 
 
 
Sales commissions
 
$

 
$
1,663

 
$

 
$

Dealer manager fees
 

 
1,098

 

 

Offering costs
 
104

 
1,875

 
37

 
116

Distribution fees (3)
 
19

 
1,957

 
24,881

 
26,684

Total
 
$
123

 
$
6,593

 
$
24,918

 
$
26,800

 
(1)
Asset management fees for the three months ended March 31, 2018 relate to our proportionate share of the disposition fee associated with the dispositions of joint venture properties and are included in asset management fees on the Company’s condensed consolidated statement of operations. Asset management fees for the three months ended March 31, 2017 relate to the disposition fee associated with dispositions of wholly-owned properties and are netted against the respective gain from dispositions and included in the related net gain amount on the Company’s condensed consolidated statements of operations.
(2)
Other expense reimbursements include certain expenses incurred in connection with the services provided to the Company under the fifth amended and restated advisory agreement, dated August 12, 2017, by and among the Company, the Operating Partnership, and the Advisor. 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 $1.2 million and $1.3 million for the three months ended March 31, 2018 and 2017, 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.
(3)
Distribution fees accrue daily and are payable monthly in arrears. As of March 31, 2018, 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 March 31, 2018, the future estimated amounts payable of $24.2 million are included in due to affiliates on the condensed consolidated balance sheets.
Joint Ventures
As described in “Note 3,” the Company owns a 20.0% interest in the BTC I Partnership and an 8.0% interest in the BTC II Partnership, each of which is a joint venture that has and continues to invest in industrial properties located in certain major U.S. distribution markets. Two of the Company’s wholly-owned subsidiaries, IPT BTC I GP LLC and IPT BTC I LP LLC, are partners in the BTC I Partnership. Third-party limited partners own the remaining 80.0% interest in the BTC I Partnership. The Company’s 8.0% interest in the BTC II Partnership is owned through two of its wholly-owned subsidiaries, IPT BTC II GP LLC (the “General Partner”) and IPT BTC II LP LLC (the “IPT Limited Partner,” and together with the General Partner, the “IPT Partners”). BCG BTC II Investors LLC (the “BCG Limited Partner”), owns a 2.0% interest in the BTC II Partnership.

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The BCG Limited Partner is an affiliate of Black Creek Group LLC (“BCG”), which is an affiliate of the Sponsor. bcIMC (College) US Realty Inc., bcIMC (Municipal) US Realty Inc., bcIMC (Public Service) US Realty Inc., bcIMC (Teachers) US Realty Inc., bcIMC (WCB) US Realty Inc., bcIMC (WCBAF) Realpool Global Investment Corporation, bcIMC (Hydro) US Realty Inc. and QuadReal US Holdings, Inc. (collectively, the “QuadReal Limited Partner”) own the remaining 90.0% interest in the BTC II Partnership.
The Advisor has two wholly-owned subsidiaries, which are referred to herein as “Advisor Sub I” and “Advisor Sub II,” and collectively, the “Advisor Subs.” Advisor Sub I holds a special limited partner interest in the BTC I Partnership and an affiliate of Advisor Sub II holds a special limited partner interest in the BTC II Partnership. The BTC I Partnership pays fees to Advisor Sub I for providing advisory services to the BTC I Partnership and the BTC II Partnership pays fees to Advisor Sub II for providing advisory services to the BTC II Partnership. These advisory services include acquisition and asset management services and, to the extent applicable, development management and development oversight services. In addition, the partnership agreements for the joint ventures contain procedures for making distributions to the parties, including incentive distributions to the respective Advisor Sub that is a special limited partner of the respective joint venture, which are subject to certain return thresholds being achieved. The obligations of the Advisor Subs to provide advisory services to the respective joint ventures will terminate upon termination of the Advisory Agreement with the exception that if the Advisory Agreement is terminated other than for “cause,” the respective Advisor Subs will have the option, in their sole discretion, to seek to become the administrative general partner of the respective joint venture; subject, in the case of the BTC I Partnership, to certain conditions, including obtaining the consent of the third party limited partners. If the respective Advisor Sub is made the administrative general partner, then the Advisor Sub will continue to provide the advisory services and receive the same fees as those to which it was entitled prior to becoming the administrative general partner, but the Advisor Sub will not control or manage the respective joint venture.
As a result of the payment of the fees to the respective Advisor Subs by the respective joint ventures, the fees payable to the Advisor pursuant to the Advisory Agreement will be reduced by the product of (i) the fees actually paid to the Advisor Subs, and (ii) the percentage interest of the respective joint venture owned by the Company or any entity in which the Company owns an interest. Accordingly, with respect to each joint venture, the aggregate of all fees paid to the respective Advisor Sub will not, with respect to the interests in such joint venture held by the Company or any entity in which the Company owns an interest, exceed the aggregate amounts otherwise payable to the Advisor pursuant to the Advisory Agreement for such services.
For the three months ended March 31, 2018 the joint ventures incurred in aggregate approximately $2.0 million 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 $0.8 million for the three months ended March 31, 2017.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information and disclosure of non-cash investing and financing activities is as follows:
 
 
For the Three Months Ended
March 31,
(in thousands)
 
2018
 
2017
Distributions payable
 
$
23,814

 
$
21,922

Redemptions payable
 
6,372

 
3,611

Future estimated distribution fees payable
 
24,245

 
27,414

Distributions reinvested in common stock
 
12,222

 
10,271

Non-cash capital expenditures
 
999

 
4,196


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Restricted Cash
Restricted cash consists of cash held in escrow in connection with certain financing requirements and tenant improvements. The following table presents a reconciliation of the beginning of period and end of period cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the totals shown in the consolidated statements of cash flows:
 
 
For the Three Months Ended
March 31,
(in thousands)
 
2018
 
2017
 
Beginning of period:
 
 
 
 
 
Cash and cash equivalents
 
$
5,397

 
$
8,358

 
Restricted cash
 
65

 
80

 
Cash, cash equivalents and restricted cash
 
$
5,462

 
$
8,438

 
End of period:
 
 
 
 
 
Cash and cash equivalents
 
$
9,199

 
$
6,751

 
Restricted cash
 
65

 
65

 
Cash, cash equivalents and restricted cash
 
$
9,264

 
$
6,816

 
9. COMMITMENTS AND CONTINGENCIES
The Company and the Operating Partnership are not presently involved in any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company or its investments.
Environmental Matters
A majority of the properties the Company acquires are subject to environmental reviews either by the Company or the previous owners. In addition, the Company may incur environmental remediation costs associated with certain land parcels it may acquire in connection with the development of land. The Company has acquired certain properties in urban and industrial areas that may have been leased to or previously owned by commercial and industrial companies that discharged hazardous material. The Company may purchase various environmental insurance policies to mitigate its exposure to environmental liabilities. The Company is not aware of any environmental liabilities that it believes would have a material adverse effect on its business, financial condition, or results of operations as of March 31, 2018.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References to the terms “we,” “our,” or “us” refer to Industrial Property Trust Inc. and its consolidated subsidiaries. The following discussion and analysis should be read together with our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes certain statements that may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements relate to, without limitation, rent and occupancy growth, general conditions in the geographic area where we operate, our future debt and financial position, our future capital expenditures, future distributions and acquisitions (including the amount and nature thereof), other developments and trends of the real estate industry, business strategies and the expansion and growth of our operations. Forward-looking statements are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “project,” or the negative of these words or other comparable terminology. These statements are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that are difficult to predict.
The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions, and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to:
Our ability to locate and make investments in accordance with our business strategy;
The failure of properties to perform as we expect;
Risks associated with acquisitions, dispositions and development of properties;
Our failure to successfully integrate acquired properties and operations;
Unexpected delays or increased costs associated with any development projects;
The availability of cash flows from operating activities for distributions and capital expenditures;
Defaults on or non-renewal of leases by customers, lease renewals at lower than expected rent, or failure to lease properties at all or on favorable rents and terms;
Difficulties in economic conditions generally and the real estate, debt, and securities markets specifically;
Legislative or regulatory changes, including changes to the laws governing the taxation of real estate investment trusts (“REITs”);
Our failure to obtain, renew, or extend necessary financing or access the debt or equity markets;
Conflicts of interest arising out of our relationships with Industrial Property Advisors Group LLC (the “Sponsor”), the Advisor, and their affiliates;
Risks associated with using debt to fund our business activities, including re-financing and interest rate risks;
Increases in interest rates, operating costs, or greater than expected capital expenditures;
Changes to GAAP; and
Our ability to continue to qualify as a REIT.
Any of the assumptions underlying forward-looking statements could prove to be inaccurate. Our stockholders are cautioned not to place undue reliance on any forward-looking statements included in this Quarterly Report on Form 10-Q. All forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and the risk that actual results will differ materially from the expectations expressed in this Quarterly Report on Form 10-Q will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this Quarterly Report on Form 10-Q, whether as a result of new information, future events, changed circumstances, or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Quarterly Report on Form 10-Q, including, without limitation, the risks described under “Risk Factors,” the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report on Form 10-Q will be achieved.

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OVERVIEW
General
Industrial Property Trust Inc. is a Maryland corporation formed on August 28, 2012 to make investments in income-producing real estate assets consisting primarily of high-quality distribution warehouses and other industrial properties that are leased to creditworthy corporate customers. We have operated and elected to be treated as a REIT for U.S. federal income tax purposes, commencing with the taxable year ended December 31, 2013, and we intend to continue to operate in accordance with the requirements for qualification as a REIT. We utilize an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) organizational structure to hold all or substantially all of our assets through the Operating Partnership.
On July 24, 2013, we commenced an initial public offering of up to $2.0 billion in shares of our common stock, including up to $1.5 billion in shares of common stock in our primary offering and $500.0 million in shares offered under our distribution reinvestment plan. On June 30, 2017, we terminated the primary portion of our initial public offering. We are continuing to offer and sell shares pursuant to our distribution reinvestment plan at a price equal to the NAV per share we most recently disclosed, which is presently $11.11 per share. We may terminate our distribution reinvestment plan offering at any time. As of March 31, 2018, we had raised gross proceeds of approximately $1.8 billion from the sale of 177.9 million shares of our common stock in our public offering, including shares issued under our distribution reinvestment plan. See “Note 6 to the Condensed Consolidated Financial Statements” for information concerning our distribution reinvestment plan offering.
As of March 31, 2018, we owned and managed, either directly or through our minority ownership interests in our joint ventures, a real estate portfolio that included 282 industrial buildings totaling approximately 48.0 million square feet located in 26 markets throughout the U.S., with 501 customers, and was 88.6% occupied (89.6% leased) with a weighted-average remaining lease term (based on square feet) of approximately 4.4 years. The occupied rate reflects the square footage with a paying customer in place. The leased rate includes the occupied square footage and additional square footage with leases in place that have not yet commenced. As of March 31, 2018:
269 industrial buildings totaling approximately 43.9 million square feet comprised our operating portfolio, which includes stabilized properties, and was 95.7% occupied (96.2% leased).
13 industrial buildings totaling approximately 4.1 million square feet comprised our development and value-add portfolio, which includes buildings acquired with the intention to reposition or redevelop, or buildings recently completed which have not yet reached stabilization. We generally consider a building to be stabilized on the earlier to occur of the first anniversary of a building’s shell completion or a building achieving 90% occupancy.
Of our total portfolio, we owned and managed 46 buildings totaling approximately 10.4 million square feet through our joint ventures (as described in “Note 3 to the Condensed Consolidated Financial Statements”). From January 2014 through March 31, 2018, we had acquired, either directly or through our minority ownership interest in our joint ventures, 295 buildings comprised of approximately 49.7 million square feet for an aggregate total purchase price of approximately $3.7 billion. We funded these acquisitions primarily with proceeds from our public offering and debt financings.
We have used the net proceeds from our public offering primarily to make investments in real estate assets. We may use the cash flows generated from operating activities, net proceeds from the sale of common stock pursuant to our distribution reinvestment plan, funds provided by debt financings and refinancings, and net proceeds from asset sales to continue to acquire real estate assets. The number and type of properties we may acquire and debt and other investments we may make will depend upon real estate market conditions and other circumstances existing at the time we make our investments.
Our primary investment objectives include the following:
Preserving and protecting our stockholders’ capital contributions;
Providing current income to our stockholders in the form of regular distributions; and
Realizing capital appreciation upon the potential sale of our assets or other liquidity events.
There is no assurance that we will attain our investment objectives. Our charter places numerous limitations on us with respect to the manner in which we may invest our funds. In most cases these limitations cannot be changed unless our charter is amended, which may require the approval of our stockholders.
We may acquire assets free and clear of mortgage or other indebtedness by paying the entire purchase price in cash or equity securities, or a combination thereof, and we may selectively encumber all or only certain assets with debt. The proceeds from our borrowings may be used to fund investments, make capital expenditures, pay distributions, and for general corporate purposes.
We expect to manage our financing strategy under the current mortgage lending and corporate financing environment by considering various lending sources, which may include long-term fixed-rate mortgage loans, unsecured or secured lines of credit or term loans,

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private placements or public bond issuances, and the assumption of existing loans in connection with certain property acquisitions, or any combination of the foregoing.
Summary of 2018 Activities
During the three months ended March 31, 2018, we completed the following activities:
In January 2018, IPT BTC II LP LLC (the “IPT Limited Partner”) sold and assigned a portion of its ownership interest in the BTC II Partnership to the QuadReal Limited Partner in an amount equal to a 5.0% interest in the BTC II Partnership for a purchase price equal to approximately $4.2 million. Prior to the sale, the IPT Limited Partner owned a 13.0% interest in the BTC II Partnership and, after the sale, the IPT Limited Partner, together with IPT BTC II GP LLC, owns a 8.0% interest in the BTC II Partnership.
We directly acquired one industrial building comprised of approximately 0.1 million square feet for a purchase price of approximately $11.3 million.
We, through our 20.0% ownership interest in the BTC I Partnership, completed the development of three industrial buildings comprising approximately 1.2 million square feet for an aggregate total purchase price of approximately $116.2 million, and sold one industrial building totaling 0.1 million square feet for net proceeds of $19.0 million. As of March 31, 2018, the BTC I Partnership owned 35 industrial buildings totaling approximately 8.2 million square feet.
We, through our 8.0% ownership interest in the BTC II Partnership, acquired one industrial building totaling approximately 0.3 million square feet for a purchase price of approximately $17.0 million. As of March 31, 2018, the BTC II Partnership owned 11 industrial buildings totaling approximately 2.3 million square feet.
As of March 31, 2018, our joint ventures had eight buildings under construction totaling approximately 2.4 million square feet, and 10 buildings in the pre-construction phase for an additional 1.9 million square feet.
We leased approximately 2.3 million square feet, which included 1.2 million square feet of new and future leases and 1.1 million square feet of renewals. Future leases represent new leases for units that are entered into while the units are occupied by the current customer.
Portfolio Information
Our total owned and managed portfolio was as follows:
 
 
As of,
(square feet in thousands)
 
March 31, 2018
 
December 31, 2017
 
March 31, 2017
Portfolio data:
 
 
 
 
 
 
Consolidated buildings
 
236

 
235

 
221

Unconsolidated buildings
 
46

 
43

 
30

Total buildings
 
282

 
278

 
251

Rentable square feet of consolidated buildings
 
37,566

 
37,460

 
34,904

Rentable square feet of unconsolidated buildings
 
10,424

 
9,032

 
5,276

Total rentable square feet
 
47,990

 
46,492

 
40,180

Total number of customers (1)
 
501

 
493

 
477

Percent occupied of operating portfolio (1)(2)
 
95.7
%
 
96.2
%
 
96.1
%
Percent occupied of total portfolio (1)(2)
 
88.6
%
 
88.4
%
 
91.4
%
Percent leased of operating portfolio (1)(2)
 
96.2
%
 
96.5
%
 
96.2
%
Percent leased of total portfolio (1)(2)
 
89.6
%
 
90.3
%
 
91.6
%
 
(1)
Represents our total portfolio, which includes our consolidated and unconsolidated properties.
(2)
See “Overview—General” above for a description of our operating portfolio and our total portfolio (which includes our operating and development and value-add portfolios) and for a description of the occupied and leased rates.

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Results for the Three Months Ended March 31, 2018 Compared to the Same Period in 2017
The following table summarizes our results of operations for the three months ended March 31, 2018 as compared to same period in 2017. We evaluate the performance of consolidated operating properties we own and manage using a same store analysis because the population of properties in this analysis is consistent from period to period, thereby eliminating the effects of any material changes in the composition of the aggregate portfolio on performance measures. We have defined the same store portfolio to include consolidated operating properties owned for the entirety of both the current and prior reporting periods for which the operations had been stabilized. “Other properties” includes buildings not meeting the same store criteria. The same store operating portfolio for the three month periods presented below included 205 buildings totaling approximately 33.1 million square feet owned as of January 1, 2017, which portfolio represented 88.2% of total rentable square feet, 91.2% of total revenues, and 91.8% of net operating income as of March 31, 2018.  
 
 
For the Three Months Ended
March 31,
 
 
 
 
(in thousands, except per share data)
 
2018
 
2017
 
$ Change
 
% Change
Rental revenues:
 
 
 
 
 
 
 
 
Same store operating properties
 
$
53,722

 
$
52,902

 
$
820

 
1.6
 %
Other properties
 
5,172

 
1,670

 
3,502

 
209.7

Total rental revenues
 
58,894

 
54,572

 
4,322

 
7.9

Rental expenses:
 
 
 
 
 
 
 
 
Same store operating properties
 
(14,146
)
 
(14,042
)
 
(104
)
 
(0.7
)
Other properties
 
(1,660
)
 
(479
)
 
(1,181
)
 
(246.6
)
Total rental expenses
 
(15,806
)
 
(14,521
)
 
(1,285
)
 
(8.8
)
Net operating income:
 
 
 
 
 
 
 
 
Same store operating properties
 
39,576

 
38,860

 
716

 
1.8

Other properties
 
3,512

 
1,191

 
2,321

 
194.9

Total net operating income
 
43,088

 
40,051

 
3,037

 
7.6

Other income and (expenses):
 
 
 
 
 
 
 
 
Real estate-related depreciation and amortization
 
(27,871
)
 
(27,523
)
 
(348
)
 
(1.3
)
General and administrative expenses
 
(2,853
)
 
(2,242
)
 
(611
)
 
(27.3
)
Asset management fees, related party
 
(6,165
)
 
(5,383
)
 
(782
)
 
(14.5
)
Equity in income (loss) of unconsolidated joint ventures
 
1,053

 
(29
)
 
1,082

 
3,731.0

Interest expense and other
 
(11,682
)
 
(10,018
)
 
(1,664
)
 
(16.6
)
Net loss (gain) on disposition of real estate properties
 

 
75

 
(75
)
 
(100
)
Total other income (expenses)
 
(47,518
)
 
(45,120
)
 
(2,398
)
 
(5.3
)
Net loss
 
(4,430
)
 
(5,069
)
 
639

 
12.6

Net loss attributable to noncontrolling interests
 

 
(16
)
 
16

 
100.0

Net loss attributable to common stockholders
 
$
(4,430
)
 
$
(5,085
)
 
$
655

 
12.9
 %
Weighted-average shares outstanding
 
175,565

 
160,296

 
15,269

 
 
Net loss per common share - basic and diluted
 
$
(0.03
)
 
$
(0.03
)
 
$

 
 
Rental Revenues. Rental revenues are comprised of base rent, straight-line rent, amortization of above- and below-market lease assets and liabilities, and tenant reimbursement revenue. Total rental revenues increased by approximately $4.3 million for the three months ended March 31, 2018 as compared to the same period in 2017, primarily due to an increase in non-same store revenues, which was attributable to the significant growth in our portfolio over these periods. For the three months ended March 31, 2018, non-same store rental revenues reflect the addition of 25 buildings we had acquired since January 1, 2017. Same store rental revenues for the three months ended March 31, 2018 increased by 1.6% as compared to the same period in 2017, primarily due to higher rental rates for new leases and renewals, as well as an increase in the average occupancy rate for the same store operating portfolio from 95.9% to 97.0% for the three months ended March 31, 2018, respectively, as compared to the same period in 2017.
Rental Expenses. Rental expenses include certain property operating expenses typically reimbursed by our customers, such as real estate taxes, property insurance, property management fees, repair and maintenance, and certain non-recoverable expenses, such as consulting services and roof repairs. Total rental expenses increased by approximately $1.3 million for the three months ended

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March 31, 2018, as compared to the same period in 2017, primarily due to an increase in non-same store rental expenses attributable to the significant growth in our portfolio over these periods. Same store rental expenses for the three months ended March 31, 2018 increased by 0.7% primarily due to higher maintenance and repair expenses as a result of several large snow storms in Pennsylvania and New Jersey markets as compared to the same period in 2017.
Other Income and Expenses. Other income and expenses, in aggregate, increased by $2.4 million, or 5.3%, for the three months ended March 31, 2018, as compared to the same period in 2017 primarily due to: 
an increase in interest expense of $1.7 million for the three months ended March 31, 2018 primarily due to: (i) a net increase in property level borrowings of $181.0 million as of March 31, 2018, as compared to March 31, 2017; and (ii) a higher aggregate weighted-average interest rate of 3.09% as of March 31, 2018, as compared to 2.88% as of March 31, 2017; and
an increase in general and administrative expenses, asset management fees and real estate-related depreciation and amortization expense totaling an aggregate amount of $1.7 million, or 5.0%, for the three months ended March 31, 2018 as a result of the growth in our portfolio since January 1, 2017; all partially offset by
an increase in our proportionate share of the income of our unconsolidated joint ventures of $1.1 million.
ADDITIONAL MEASURES OF PERFORMANCE
Net Loss and Net Operating Income (“NOI”)
We define NOI as GAAP rental revenues less GAAP rental expenses. For the three months ended March 31, 2018, GAAP net loss applicable to common stockholders was $4.4 million, as compared to $5.1 million for the three months ended March 31, 2017. For the three months ended March 31, 2018, NOI increased 7.6% to $43.1 million, as compared to $40.1 million for the three months ended March 31, 2017. For the three months ended March 31, 2018, same store NOI was $39.6 million as compared to $38.9 million for the three months ended March 31, 2017. We consider NOI to be an appropriate supplemental performance measure and believe NOI provides useful information to our investors regarding our financial condition and results of operations because NOI reflects the operating performance of our properties and excludes certain items that are not considered to be controllable in connection with the management of the properties, such as real estate-related depreciation and amortization, acquisition-related expenses, impairment charges, general and administrative expenses and interest expense. However, NOI should not be viewed as an alternative measure of our financial performance since it excludes such expenses, which 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 our net loss, as defined by GAAP, to be the most appropriate measure to evaluate our overall performance. Refer to “Results of Operations—Results for the Three Months Ended March 31, 2018 Compared to the Same Periods in 2017” above for a reconciliation of our GAAP net loss to NOI for the three months ended March 31, 2018 and 2017.
Funds from Operations (“FFO”), Company-Defined Funds from Operations (“Company-defined FFO”) and Modified Funds from Operations (“MFFO”)
We believe that FFO, Company-defined FFO, and MFFO, in addition to net loss and cash flows from operating activities as defined by GAAP, are useful supplemental performance measures that our management uses to evaluate our consolidated operating performance. However, these supplemental, non-GAAP measures should not be considered as an alternative to net loss or to cash flows from operating activities as an indication of our performance and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. 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. Fees deferred or waived by the Advisor and payments received from the Advisor pursuant to the expense support agreement, as described in Item 8, “Financial Statements and Supplementary Data” in our 2017 Form 10-K. are included in determining our net loss, which is used to determine FFO, Company-defined FFO, and MFFO. If we had not received expense support from the Advisor in prior periods, our FFO, Company-defined FFO, and MFFO for such periods would have been lower. In addition, other REITs may define FFO and similar measures differently and choose to treat acquisition-related costs and potentially other accounting line items in a manner different from us due to specific differences in investment and operating strategy or for other reasons.
FFO. As defined by the National Association of Real Estate Investment Trusts (“NAREIT”), FFO is a non-GAAP measure that excludes certain items such as real estate-related depreciation and amortization, impairment of depreciable real estate, and gains or losses on sales of assets. We believe FFO is a meaningful supplemental measure of our operating performance that is useful to investors because depreciation and amortization in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. By excluding gains or losses on the sale of assets, we believe FFO provides a helpful

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additional measure of our consolidated operating performance on a comparative basis. We use FFO as an indication of our consolidated operating performance and as a guide to making decisions about future investments.
Company-defined FFO. Similar to FFO, Company-defined FFO is a non-GAAP measure that excludes real estate-related depreciation and amortization, impairment of depreciable real estate, and gains or losses on sales of assets, and also excludes acquisition-related costs (including acquisition fees paid to the Advisor) and organization costs, each of which are characterized as expenses in determining net loss under GAAP. Organization costs are excluded as they are paid in cash and relate to costs paid in conjunction with the organization of the Company. The purchase of operating properties has been a key strategic objective of our business plan focused on generating growth in operating income and cash flow in order to make distributions to investors. However, the corresponding acquisition-related costs are driven by transactional activity rather than factors specific to the on-going operating performance of our properties or investments. Due to a new accounting standard that we adopted as of January 1, 2017, acquisition-related costs are no longer expensed, but are capitalized as incurred, as the properties we acquire are considered assets rather than businesses under the new standard. As a result, acquisition-related costs for properties that meet the definition of an asset rather than a business are no longer an adjustment, effective January 1, 2017. Company-defined FFO may not be a complete indicator of our operating performance, and may not be a useful measure of the long-term operating performance of our properties if we do not continue to operate our business plan as disclosed.
MFFO. As defined by the Institute for Portfolio Alternatives (“IPA”), MFFO is a non-GAAP supplemental financial performance measure used to evaluate our operating performance. Similar to FFO, MFFO excludes items such as real estate-related depreciation and amortization, impairment of depreciable real estate, and gains or losses on sales of assets, but includes organization costs. Similar to Company-defined FFO, MFFO excludes acquisition-related costs. MFFO also excludes straight-line rent and amortization of above- and below-market leases. As described above, due to a new accounting standard that we adopted as of January 1, 2017, acquisition-related costs are no longer expensed, but are capitalized as incurred, as the properties we acquire are considered assets rather than businesses under the new standard. As a result, acquisition-related costs for properties that meet the definition of an asset rather than a business are no longer an adjustment, effective January 1, 2017. In addition, there are certain other MFFO adjustments as defined by the IPA that are not applicable to us and are not included in our presentation of MFFO.
We have been in the acquisition phase of our life cycle. Management does not include historical acquisition-related costs in its evaluation of future operating performance, as such costs are not expected to be incurred once our acquisition phase is complete. In addition, management does not include organization costs as those costs are also not expected to be incurred because we have commenced operations. We use FFO, Company-defined FFO and MFFO to, among other things: (i) evaluate and compare the potential performance of the portfolio after the acquisition phase is complete, and (ii) evaluate potential performance to determine liquidity event strategies. We believe FFO, Company-defined FFO and MFFO facilitate a comparison to other REITs that have similar operating characteristics as us. We believe investors are best served if the information that is made available to them allows them to align their analyses and evaluation with the same performance metrics used by management in planning and executing our business strategy. We believe that these performance metrics will assist investors in evaluating the potential performance of the portfolio after the completion of the acquisition phase. However, these supplemental, non-GAAP measures are not necessarily indicative of future performance and should not be considered as an alternative to net loss or to cash flows from operating activities and is not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs. Neither the SEC, NAREIT, nor any regulatory body has passed judgment on the acceptability of the adjustments used to calculate FFO, Company-defined FFO and MFFO. In the future, the SEC, NAREIT, or a regulatory body may decide to standardize the allowable adjustments across the non-traded REIT industry at which point we may adjust our calculation and characterization of FFO, Company-defined FFO and MFFO.

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The following unaudited table presents a reconciliation of GAAP net loss to NAREIT FFO, Company-defined FFO and MFFO:
 
 
For the Three Months Ended
March 31,
 
For the Period
from Inception
(August 28, 2012) to
March 31, 2018
(in thousands, except per share data)
 
2018
 
2017
 
GAAP net loss attributable to common stockholders
 
$
(4,430
)
 
$
(5,085
)
 
$
(135,548
)
GAAP net loss per common share
 
$
(0.03
)
 
$
(0.03
)
 
$
(1.83
)
Reconciliation of GAAP net loss to NAREIT FFO:
 
 
 
 
 
 
GAAP net loss attributable to common stockholders
 
$
(4,430
)
 
$
(5,085
)
 
$
(135,548
)
Add NAREIT-defined adjustments:
 
 
 
 
 
 
Real estate-related depreciation and amortization
 
27,871

 
27,523

 
268,394

Our share of real estate-related depreciation and amortization of unconsolidated joint ventures
 
889

 
602

 
8,896

Impairment of real estate property
 

 

 
2,672

Net loss (gain) on disposition of real estate properties
 

 
(75
)
 
(1,472
)
Our share of net gain on disposition of real estate properties of unconsolidated joint ventures and sell down of joint venture ownership interest
 
(595
)
 

 
(1,859
)
NAREIT FFO attributable to common stockholders
 
$
23,735

 
$
22,965

 
$
141,083

NAREIT FFO per common share
 
$
0.14

 
$
0.14

 
$
1.90

Reconciliation of NAREIT FFO to Company-defined FFO:
 
 
 
 
 
 
NAREIT FFO attributable to common stockholders
 
$
23,735

 
$
22,965

 
$
141,083

Acquisition costs
 

 

 
80,877

Our share of acquisition costs of unconsolidated joint ventures
 

 

 
1,697

Organization costs
 

 

 
93

Company-defined FFO attributable to common stockholders
 
$
23,735

 
$
22,965

 
$
223,750

Company-defined FFO per common share
 
$
0.14

 
$
0.14

 
$
3.02

Reconciliation of Company-defined FFO to MFFO:
 
 
 
 
 
 
Company-defined FFO attributable to common stockholders
 
$
23,735

 
$
22,965

 
$
223,750

Deduct MFFO adjustments:
 
 
 
 
 
 
Straight-line rent and amortization of above/below market leases
 
(2,515
)
 
(3,388
)
 
(33,254
)
Our share of straight-line rent and amortization of above/below market leases of unconsolidated joint ventures
 
(466
)
 
(69
)
 
(2,284
)
Organization costs
 

 

 
(93
)
MFFO attributable to common stockholders
 
$
20,754

 
$
19,508

 
$
188,119

MFFO per common share
 
$
0.12

 
$
0.12

 
$
2.54

Weighted-average shares outstanding
 
175,565

 
160,296

 
74,091

We believe that: (i) our FFO of $23.7 million, or $0.14 per share, as compared to the total gross distributions declared (which are paid in cash or reinvested in shares offered through our distribution reinvestment plan) in the amount of $25.0 million, or $0.14 per share, for the three months ended March 31, 2018; and (ii) our FFO of $141.1 million, or $1.90 per share, as compared to the total gross distributions declared (which are paid in cash or reinvested in shares offered through our distribution reinvestment plan) of $224.7 million, or $2.46 per share, for the period from Inception (August 28, 2012) to March 31, 2018, are not indicative of future performance as we have been in the acquisition phase of our life cycle. See “Capital Resources and Uses of Liquidity—Distributions” below for details concerning our distributions, which are paid in cash or reinvested in shares of our common stock by participants in our distribution reinvestment plan.

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LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our primary sources of capital for meeting our cash requirements include, and will continue to include, cash flows generated from operating activities, net proceeds from the sale of common stock pursuant to our distribution reinvestment plan, funds provided by debt financings and refinancings, and net proceeds from asset sales. Our principal uses of funds are, and will continue to be, for the acquisition of properties and other investments, capital expenditures, operating expenses, payments under our debt obligations, and distributions to our stockholders. We terminated the primary portion of our offering on June 30, 2017, and accordingly, net proceeds from our offering will no longer be a primary source of capital for meeting our cash needs, as we have fully deployed the net proceeds from the sale of primary shares in our offering. We expect to utilize the same sources of capital to meet our short-term and long-term liquidity and capital requirements.
Now that the net proceeds from the primary portion of our offering have been fully deployed, we will no longer have priority over another non-traded, public REIT, Black Creek Industrial REIT IV Inc. (“BCI IV”), which is sponsored by an affiliate of our Sponsor, with regard to the acquisition of industrial properties. Rather, we and other investment vehicles sponsored by affiliates of the Advisor and the Sponsor with capital available to invest will have access to industrial property investment opportunities on a rotational basis that the Sponsor determines to be fair and reasonable to the applicable vehicles. The Advisor, subject to the oversight of our board of directors and, under certain circumstances, the investment committee or other committees established by our board of directors, will continue to evaluate potential acquisitions and will engage in negotiations with sellers and lenders on our behalf.
Cash Flows. The following table summarizes our cash flows, as determined on a GAAP basis, for the following periods:
 
 
For the Three Months Ended
March 31,
(in thousands)
 
2018
 
2017
Total cash provided by (used in):
 
 
 
 
Operating activities
 
$
22,301

 
$
20,172

Investing activities
 
(23,841
)
 
(95,235
)
Financing activities
 
5,342

 
73,441

Net increase (decrease) in cash
 
$
3,802

 
$
(1,622
)
Cash provided by operating activities during the three months ended March 31, 2018 increased by approximately $2.1 million as compared to the same period in 2017, primarily as a result of continued growth in our property operations. Cash used in investing activities during the three months ended March 31, 2018 decreased by approximately $71.4 million as compared to the same period in 2017, primarily due to a net decrease in our acquisition activity in the amount of $82.0 million, partially offset by net proceeds from the disposition of real estate properties in the first quarter of 2017 of $15.4 million. Cash provided by financing activities during the three months ended March 31, 2018 decreased by approximately $68.1 million as compared to the same period in 2017, primarily due to a decrease in our net borrowing activity of $16.9 million, as well as a decrease in our equity raised of $46.5 million as a result of the termination of the primary portion of our offering.
Capital Resources and Uses of Liquidity
In addition to our cash and cash equivalents balances available, our capital resources and uses of liquidity are as follows:
Line of Credit and Term Loans. As of March 31, 2018, we had an aggregate of $1.0 billion of commitments under our credit agreements, including $500.0 million under our line of credit and $500.0 million under our two term loans. As of that date, we had: (i) approximately $298.0 million outstanding under our line of credit with a weighted-average effective interest rate of 2.86%, which includes the effect of the interest rate swap agreements related to $150.0 million in borrowings under our line of credit; and (ii) $500.0 million outstanding under our term loans with a weighted-average effective interest rate of 2.84%, which includes the effect of the interest rate swap agreements related to $350.0 million in borrowings under our term loans. The unused and available portions under our line of credit were both $202.0 million. Our $500.0 million line of credit matures in January 2020, and may be extended pursuant to a one-year extension option, subject to certain conditions, including the payment of an extension fee. Our $350.0 million term loan matures in January 2021 and our $150.0 million term loan matures in May 2022. Our line of credit and term loan borrowings are available for general corporate purposes, including but not limited to the acquisition and operation of permitted investments. Refer to “Note 4 to the Condensed Consolidated Financial Statements” for additional information regarding our line of credit and term loans.

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Mortgage Notes. As of March 31, 2018, we had property-level borrowings of approximately $722.9 million outstanding with a weighted-average remaining term of 6.1 years. These borrowings are secured by mortgages or deeds of trust and related assignments and security interests in the collateralized properties, and had a weighted-average interest rate of 3.36%, which includes the effects of the interest rate swap agreement relating to our $97.0 million variable-rate mortgage note. The proceeds from our mortgage notes were used to partially finance certain of our acquisitions. Refer to “Note 4 to the Condensed Consolidated Financial Statements” for additional information regarding the mortgage notes.
Debt Covenants. Our line of credit, term loan and mortgage note agreements contain various property-level covenants, including customary affirmative and negative covenants. In addition, our 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. These covenants may limit our ability to incur additional debt, to make borrowings under our line of credit, or to pay distributions. We were in compliance with all debt covenants as of March 31, 2018.
Offering Proceeds. As of March 31, 2018, aggregate gross proceeds raised from our offering, including proceeds raised through our distribution reinvestment plan, were $1.8 billion ($1.6 billion net of direct selling costs).
Distributions. We intend to continue to make distributions on a quarterly basis. For the three months ended March 31, 2018, 51.7% of our total gross distributions were paid from cash flows from operating activities, as determined on a GAAP basis, and 48.3% of our total gross distributions were funded from sources other than cash flows from operating activities, specifically with proceeds from shares issued pursuant to our distribution reinvestment plan. Some or all of our future distributions may continue to be paid from sources other than cash flows from operating activities, such as cash flows from financing activities, which include borrowings, proceeds from the issuance of shares pursuant to our distribution reinvestment plan, cash resulting from a waiver or deferral of fees or expense reimbursements otherwise payable to the Advisor or its affiliates, cash resulting from the Advisor or its affiliates paying certain of our expenses, net proceeds from the sales of assets, and our cash balances. We have not established a cap on the amount of our distributions that may be paid from any of these sources. The amount of any distributions will be determined by our board of directors, and will depend on, among other things, current and projected cash requirements, tax considerations and other factors deemed relevant by our board. For the second quarter of 2018, our board of directors authorized daily distributions to all common stockholders of record as of the close of business on each day of the second quarter of 2018 at a quarterly rate of $0.1425 per Class A share of common stock and $0.1425 per Class T share of common stock less the annual distribution fees that are payable monthly with respect to such Class T shares (calculated on a daily basis). Distributions for the second quarter of 2018 will be aggregated and paid in cash or reinvested in shares of our common stock for those electing to participate in our distribution reinvestment plan, on a date determined by us that is no later than July 15, 2018.
There can be no assurances that the current distribution rate or amount per share will be maintained. In the near-term, we expect that we may need to continue to utilize cash flows from financing activities, as determined on a GAAP basis, to pay distributions, which if insufficient could negatively impact our ability to pay such distributions.

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The following table outlines sources used, as determined on a GAAP basis, to pay total gross distributions (which are paid in cash or reinvested in shares of our common stock through our distribution reinvestment plan) for the periods indicated below:
 
 
Source of Distributions
 
 
($ in thousands)
 
Provided by
Operating Activities
 
Proceeds from
DRIP Shares (1)
 
Gross
Distributions (2)
2018
 
 
 
 
 
 
 
 
 
 
March 31
 
$
12,947

 
51.7
%
 
$
12,076

 
48.3
%
 
$
25,023

Total
 
$
12,947

 
51.7
%
 
$
12,076

 
48.3
%
 
$
25,023

2017
 
 
 
 
 
 
 
 
 
 
December 31
 
$
12,704

 
51.0
%
 
$
12,222

 
49.0
%
 
$
24,926

September 30
 
12,584

 
50.7

 
12,242

 
49.3

 
24,826

June 30
 
11,979

 
50.2

 
11,868

 
49.8

 
23,847

March 31
 
11,397

 
49.9

 
11,447

 
50.1

 
22,844

Total
 
$
48,664

 
50.5
%
 
$
47,779

 
49.5
%
 
$
96,443

 
(1)
Stockholders may elect to have their distributions reinvested in shares of our common stock through our distribution reinvestment plan.
(2)
Gross distributions are total distributions before the deduction of distribution fees relating to Class T shares issued in the primary portion of our offering.
Refer to “Note 6 to the Condensed Consolidated Financial Statements” for further detail on distributions.
Redemptions. For the three months ended March 31, 2018 and 2017, we received eligible redemption requests related to approximately 0.7 million and 0.4 million shares of our common stock, respectively, all of which we redeemed using cash flows from financing activities, for an aggregate amount of approximately $6.4 million, or an average price of $9.79 per share, and approximately $3.6 million, or an average price of $9.58 per share, respectively. We have repurchased shares of our common stock above the estimated NAV per share most recently determined as of the date of such redemptions and, accordingly, these repurchases have been dilutive to our remaining stockholders. We are not obligated to redeem shares of our common stock under the share redemption program. We presently intend to limit the number of shares to be redeemed during any calendar quarter to the “Quarterly Redemption Cap” which will equal the lesser of: (i) one-quarter of five percent of the number of shares of common stock outstanding as of the date that is 12 months prior to the end of the current quarter; and (ii) the aggregate number of shares sold pursuant to our distribution reinvestment plan in the immediately preceding quarter, less the number of shares redeemed in the most recently completed quarter in excess of such quarter’s applicable redemption cap due to qualifying death or disability requests of a stockholder or stockholders during such quarter, which amount may be less than the Aggregate Redemption Cap described below. However, to the extent that the aggregate proceeds received from the sale of shares pursuant to our distribution reinvestment plan are not at a level sufficient to fund redemption requests, subject to the limitations as discussed in Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds—Share Redemption Program,” our board of directors retains the right, but is not obligated to, redeem additional shares if, in its sole discretion, it determines that it is in our best interest to do so, provided that we will not redeem during any consecutive 12-month period more than five percent of the number of shares of common stock outstanding at the beginning of such 12-month period (referred to herein as the “Aggregate Redemption Cap” and together with the Quarterly Redemption Cap, the “Redemption Caps”) unless permitted to do so by applicable regulatory authorities. In addition, our board of directors has reserved the right to apply the Quarterly Redemption Cap on a per class basis as described in Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds—Share Redemption Program.”
Although we presently intend to redeem shares pursuant to the above-referenced methodology, to the extent that the aggregate proceeds received from the sale of shares pursuant to our distribution reinvestment plan in any quarter are not sufficient to fund redemption requests, our board of directors may, in its sole discretion, choose to use other sources of funds to redeem shares of our common stock, up to the Aggregate Redemption Cap. Such sources of funds could include cash on hand, cash available from borrowings, cash from the sale of our shares pursuant to our distribution reinvestment plan in other quarters, and cash from liquidations of securities investments, to the extent that such funds are not otherwise dedicated to a particular use, such as working capital, distributions to stockholders, debt repayment, purchases of real property, debt related or other investments. Our board of directors may, in its sole discretion, amend, suspend, or terminate the share redemption program at any time if it determines that the funds available to fund the share redemption program are needed for other business or operational purposes or that amendment, suspension or termination of the share redemption program is in the best interest of our stockholders. If our board of directors decides to materially amend, suspend or terminate the share redemption program, we will provide

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stockholders with no less than 30 days’ prior notice, which we will provide by filing a Current Report on Form 8-K with the SEC.
CONTRACTUAL OBLIGATIONS
A summary of future obligations as of December 31, 2017 was disclosed in our 2017 Form 10-K. Except as otherwise disclosed in “Note 4 to the Condensed Consolidated Financial Statements” relating to our debt obligations, there were no material changes outside the ordinary course of business.
OFF-BALANCE SHEET ARRANGEMENTS
As of March 31, 2018, we had no off-balance sheet arrangements that have or are reasonably likely to have a material effect, on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
CRITICAL ACCOUNTING ESTIMATES
Our unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our unaudited condensed consolidated financial statements requires significant management judgments, assumptions, and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our condensed consolidated financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. For a detailed description of our critical accounting estimates, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2017 Form 10-K. As of March 31, 2018, our critical accounting estimates have not changed from those described in our 2017 Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to the impact of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows, and optimize overall borrowing costs. To achieve these objectives, we plan to borrow on a fixed interest rate basis for longer-term debt and utilize interest rate swap agreements on certain variable interest rate debt in order to limit the effects of changes in interest rates on our results of operations. As of March 31, 2018, our debt instruments consisted of borrowings under our line of credit, term loans, and mortgage notes.
Fixed Interest Rate Debt. As of March 31, 2018, our consolidated fixed interest rate debt consisted of $150.0 million of borrowings under our line of credit, $350.0 million of borrowings under one of our term loans, and $722.9 million under our mortgage notes, which, in the aggregate, represented approximately 80.4% of our total consolidated debt. The interest rates on certain of these borrowings are fixed through the use of interest rate swap agreements. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed interest rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes could affect the fair value of our fixed interest rate debt. As of March 31, 2018, the fair value and the carrying value of our consolidated fixed interest rate debt were both approximately $1.2 billion. The fair value estimate of our fixed interest 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 on March 31, 2018. As we expect to hold our fixed interest rate debt instruments to maturity, based on the underlying structure of the debt instrument, and the amounts due under such instruments are limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that market fluctuations in interest rates, and the resulting change in fair value of our fixed interest rate debt instruments, would have a significant impact on our operating cash flows.
Variable Interest Rate Debt. As of March 31, 2018, our consolidated variable interest rate debt consisted of $148.0 million of borrowings under our line of credit and our $150.0 million term loan, which represented approximately 19.6% of our total consolidated debt. Interest rate changes on our variable-rate debt could impact our future earnings and cash flows, but would not significantly affect the fair value of such debt. As of March 31, 2018, we were exposed to market risks related to fluctuations in interest rates on $298.0 million of consolidated borrowings. A hypothetical 10% change in the average interest rate on the outstanding balance of our variable interest rate debt as of March 31, 2018, would change our annual interest expense by approximately $0.6 million.

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Derivative Instruments. As of March 31, 2018, we had 11 outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk, with a total notional amount of $597.0 million. See “Note 4 to the Condensed Consolidated Financial Statements” for further detail on our interest rate swaps. We are exposed to credit risk of the counterparty to our interest rate swap agreements in the event of non-performance under the terms of the agreements. If we were not able to replace these swaps in the event of non-performance by the counterparty, we would be subject to variability of the interest rate on the amount outstanding under our debt that is fixed through the use of the swaps.

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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2018. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2018, our disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
 
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A, “Risk Factors” of our 2017 Form 10-K, which could materially affect our business, financial condition, and/or future results. The risks described in our 2017 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.
With the exception of the risk factors set forth below, which update the risk factors disclosed in our 2017 Form 10-K, there have been no material changes to the risk factors disclosed in our 2017 Form 10-K.
RISKS RELATED TO OUR GENERAL BUSINESS OPERATIONS AND OUR CORPORATE STRUCTURE
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland shall be the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders with respect to our company, our directors, our officers or our employees (we note we currently have no employees).  This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder believes is favorable for disputes with us or our directors, officers or employees, which may discourage meritorious claims from being asserted against us and our directors, officers and employees.  Alternatively, if a court were to find this provision of our charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.  We adopted this provision because we believe it makes it less likely that we will be forced to incur the expense of defending duplicative actions in multiple forums and less likely that plaintiffs’ attorneys will be able to employ such litigation to coerce us into otherwise unjustified settlements, and we believe the risk of a court declining to enforce this provision is remote, as the General Assembly of Maryland has specifically amended the MGCL to authorize the adoption of such provisions.
RISKS RELATED TO THE ADVISOR AND ITS AFFILIATES
We will compete with entities sponsored or advised by affiliates of the Sponsor, for whom affiliates of the Sponsor provide certain advisory or management services, for opportunities to acquire or sell investments, and for customers, which may have an adverse impact on our operations.
We will compete with entities sponsored or advised by affiliates of the Sponsor, whether existing or created in the future, as well as entities for whom affiliates of the Sponsor provide certain advisory or management services, for opportunities to acquire, lease, finance or sell certain types of properties. We may also buy, finance or sell properties at the same time as these entities are buying, financing or selling properties. In this regard, there is a risk that we will purchase a property that provides lower returns to us than a property purchased by entities sponsored or advised by affiliates of the Sponsor and entities for whom affiliates of the Sponsor provide certain advisory or management services. Certain entities sponsored or advised by affiliates of the Sponsor own and/or manage properties in geographical areas in which we expect to own properties. Therefore, our properties may compete for customers with other properties owned and/or managed by these entities. The Advisor may face conflicts of interest when evaluating customer leasing opportunities for our properties and other properties owned and/or managed by these entities and these conflicts of interest may have a negative impact on our ability to attract and retain customers.
The Sponsor and the Advisor have implemented lease allocation guidelines to assist with the process of the allocation of leases when we and certain other entities to which affiliates of the Advisor are providing certain advisory services have potentially competing properties with respect to a particular customer. Pursuant to the lease allocation guidelines, if we have an opportunity to bid on a lease with a prospective customer and one or more of these other entities has a potentially competing property, then, under certain circumstances, we may not be permitted to bid on the opportunity and in other circumstances, we and the other entities will be permitted to participate in the bidding process. The lease allocation guidelines are overseen by a joint management committee consisting of our management committee and certain other management representatives associated with other entities to which affiliates of the Advisor are providing similar services.
Because affiliates of the Sponsor and the Advisor currently sponsor and in the future may advise other investment vehicles (each, an "Investment Vehicle") with overlapping investment objectives, strategies and criteria, potential conflicts of interest may arise with respect to industrial real estate investment opportunities ("Industrial Investments"). In order to manage this

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potential conflict of interest, in allocating Industrial Investments among the Investment Vehicles, the Sponsor follows an allocation policy (the "Allocation Policy") which currently provides that if the Sponsor or one of its affiliates is awarded and controls an Industrial Investment that is suitable for more than one Investment Vehicle, based upon various Allocation Factors (defined below), including without limitation availability of capital, portfolio objectives, diversification goals, target investment markets, return requirements, investment timing and the Investment Vehicle's applicable approval discretion and timing, then the Industrial Investment will be allocated to Investment Vehicles on a rotational basis and will be offered to the Investment Vehicle at the top of the rotation list (that is, the Investment Vehicle that has gone the longest without being allocated an Industrial Investment). If an Investment Vehicle on the list declines the Industrial Investment, it will be rotated to the bottom of the rotation list. Exceptions may be made to the Allocation Policy for (x) transactions necessary to accommodate an exchange pursuant to Section 1031 of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), or (y) characteristics of a particular Industrial Investment or Investment Vehicle, such as adjacency to an existing asset, legal, re