**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON,D.C. 20549

**FORM 10-Q**

**(Mark One)**

**x**                              Quarterly Report Pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934

**For the quarterly periodended September 30, 2005**

**or**

**o**                                 TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934

**For the transition periodfrom             to             .**

 

**Commission File No. 000-50724**

**DIVIDENDCAPITAL TRUST INC.**

(Exact name of registrant as specified in its charter)

| **Maryland**                                                    | **82-0538520**                        |
|-----------------------------------------------------------------|---------------------------------------|
| (State or other jurisdiction  of incorporation or organization) | (I.R.S. Employer  Identification No.) |
| **518 Seventeenth Street, Suite 1700  Denver, CO**         | **80202**                             |
| (Address of principal executive offices)                        | (Zip Code)                            |

 

Registrant’stelephone number, including area code: **(303) 228-2200**

Indicate by a check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by a check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

Indicate by check mark whether the registrant is ashell company (as defined in Exchange Act Rule 12b-2).  Yes o  No x

Asof October 31, 2005, 118,271,546 shares of common stock of Dividend CapitalTrust Inc., par value $0.01 per share, were outstanding.

 

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**Dividend Capital Trust Inc. and Subsidiaries**

**Index to Form 10-Q**

|                   | ** ** | ** **                                                                                                                                                 | ** ** | **Page** |
|-------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| **PART I.**  |       | FINANCIAL  INFORMATION                                                                                                                                     |       | 1        |
| Item  1.          |       | Financial  Statements:                                                                                                                                     |       | 1        |
|              |       | Condensed Consolidated Balance Sheets as of  September 30, 2005 (Unaudited) and December 31, 2004                                                |       | 1        |
|              |       | Condensed Consolidated Statements of Operations for  the Three and Nine Months Ended September 30, 2005 and 2004 (Unaudited)                          |       | 2        |
|              |       | Condensed Consolidated Statement of Shareholders’  Equity and Other Comprehensive Loss for the Nine Months Ended  September 30, 2005 (Unaudited) |       | 3        |
|              |       | Condensed Consolidated Statements of Cash Flows for  the Nine Months Ended September 30, 2005 and 2004 (Unaudited)                                    |       | 4        |
|              |       | Notes to Condensed Consolidated Financial Statements  (Unaudited)                                                                                          |       | 5        |
| Item 2.           |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                           |       | 21       |
| Item 3.           |       | Quantitative and Qualitative Disclosure About Market  Risk                                                                                                 |       | 32       |
| Item 4.           |       | Controls and Procedures                                                                                                                                    |       | 32       |
| **PART II.** |       | OTHER  INFORMATION                                                                                                                                         |       | 34       |
| Item  1.          |       | Legal  Proceedings                                                                                                                                         |       | 34       |
| Item 2.           |       | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                                               |       | 34       |
| Item 3.           |       | Defaults upon Senior Securities                                                                                                                            |       | 34       |
| Item 4.           |       | Submission of Matters to a Vote of Security Holders                                                                                                        |       | 35       |
| Item  5.          |       | Other  Information                                                                                                                                         |       | 35       |
| Item 6.           |       | Exhibits                                                                                                                                                   |       | 35       |
| **SIGNATURES**    |       | 36                                                                                                                                                         |

 

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**PART I.FINANCIAL INFORMATION**

**ITEM 1. FINANCIAL STATEMENTS**

**DividendCapital Trust Inc. and SubsidiariesCondensed Consolidated Balance Sheets**

| ** **                                                                                                                                                                                   | ** ** | **As of  September 30,  2005** | ** **    | **As of  December 31,   2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|---------------|-----------------------------------------------|------------|
| ** **                                                                                                                                                                                   | ** ** | **(Unaudited)**                          | ** **    | ** **                                    | ** ** |
| **ASSETS**                                                                                                                                                                                   |       |                                     |          |                                          |       |
| Land                                                                                                                                                                                         |       | $                                        | 284,565,964   |                                          | $          | 120,054,674 |   |
| Buildings and  improvements                                                                                                                                                                  |       | 1,362,692,541                            |          | 572,284,194                                   |       |
| Intangible lease  assets                                                                                                                                                                     |       | 140,921,511                              |          | 61,724,701                                    |       |
|                                                                                                                                                                                         |       | 1,788,180,016                            |          | 754,063,569                                   |       |
| Less accumulated  depreciation and amortization                                                                                                                                              |       | (72,195,334                              | )             | (21,862,036                                   | )          |
|                                                                                                                                                                                         |       | 1,715,984,682                            |          | 732,201,533                                   |       |
| Investments in  and advances to unconsolidated investees                                                                                                                                     |       | 5,838,690                                |          | 75,300                                        |       |
| **Net  Investment in Real Estate**                                                                                                                                                           |       | 1,721,823,372                            |          | 732,276,833                                   |       |
| Cash and cash  equivalents                                                                                                                                                                   |       | 39,595,113                               |          | 23,520,267                                    |       |
| Restricted cash                                                                                                                                                                              |       | 5,070,628                                |          | 5,414,224                                     |       |
| Notes receivable                                                                                                                                                                             |       | 9,738,700                                |          | 4,238,700                                     |       |
| Deferred loan costs, net                                                                                                                                                                     |       | 14,688,032                               |          | 7,156,477                                     |       |
| Deferred acquisition  costs and deposits                                                                                                                                                     |       | 1,917,004                                |          | 5,406,882                                     |       |
| Straight line rent and  other receivables                                                                                                                                                    |       | 10,074,661                               |          | 5,704,063                                     |       |
| Other assets, net                                                                                                                                                                            |       | 3,374,400                                |          | 1,090,824                                     |       |
| **Total  Assets**                                                                                                                                                                            |       | $                                        | 1,806,281,910 |                                          | $          | 784,808,270 |   |
| **LIABILITIES & SHAREHOLDERS’ EQUITY**                                                                                                                                         |       |                                     |          |                                          |       |
| Liabilities:                                                                                                                                                                                 |       |                                     |          |                                          |       |
| Accounts payable and  accrued expenses                                                                                                                                                       |       | $                                        | 18,868,757    |                                          | $          | 6,302,922 |   |
| Dividends payable                                                                                                                                                                            |       | 16,957,870                               |          | 9,737,171                                     |       |
| Tenant prepaids and  security deposits                                                                                                                                                       |       | 8,237,657                                |          | 4,038,534                                     |       |
| Other liabilities                                                                                                                                                                            |       | 6,123,077                                |          | 2,842,538                                     |       |
| Intangible lease  liability, net                                                                                                                                                             |       | 10,863,764                               |          | 5,518,657                                     |       |
| Line of credit                                                                                                                                                                               |       | 16,000                                   |          | 4,000                                         |       |
| Mortgage notes                                                                                                                                                                               |       | 636,874,974                              |          | 142,754,768                                   |       |
| Financing obligations                                                                                                                                                                        |       | 118,769,530                              |          | 32,394,877                                    |       |
| **Total  Liabilities**                                                                                                                                                                       |       | 816,711,629                              |          | 203,593,467                                   |       |
| Minority Interest                                                                                                                                                                            |       | 43,879,953                               |          | 1,000                                         |       |
| Shareholders’ Equity:                                                                                                                                                                   |       |                                     |          |                                          |       |
| Preferred shares,  50,000,000 shares authorized, none outstanding                                                                                                                            |       | —                                   |          | —                                        |       |
| Shares-in-trust,  100,000,000 shares authorized, none outstanding                                                                                                                            |       | —                                   |          | —                                        |       |
| Common shares, $0.01 par  value, 350,000,000 shares authorized, 111,568,715 and 67,719,883 shares  issued and outstanding as of September 30, 2005 and December 31, 2004,  respectively |       | 1,115,687                                |          | 677,199                                       |       |
| Additional paid-in  capital                                                                                                                                                                  |       | 1,025,949,486                            |          | 611,440,163                                   |       |
| Distributions in excess  of earnings                                                                                                                                                         |       | (77,339,314                              | )             | (26,635,877                                   | )          |
| Accumulated other  comprehensive loss                                                                                                                                                        |       | (4,035,531                               | )             | (4,267,682                                    | )          |
| **Total  Shareholders’ Equity**                                                                                                                                                         |       | 945,690,328                              |          | 581,213,803                                   |       |
| **Total Liabilities and Shareholders’ Equity**                                                                                                                                          |       | $                                        | 1,806,281,910 |                                          | $          | 784,808,270 |   |

 

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

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**Dividend Capital Trust Inc. and SubsidiariesCondensed ConsolidatedStatements of Operations(Unaudited)**

| ** **                                                | ** ** | **Three Months Ended  September 30,**                     | ** ** | **Nine Months Ended  September 30,**                     | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                                | ** ** | **2005**                                                                 | ** ** | **2004**                                                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| **REVENUE:**                                              |       |                                                                     |       |                                                                    |       |   | ** ** | ** ** |   |
| Rental revenue                                            |       | $ 36,533,169                                                        |       | $ 8,934,931                                                        |       | $ 79,579,350 |   | $ 18,023,136 |   |
| Interest and other income                                 |       | 311,475                                                                  |       | 932,693                                                                 |       | 4,831,466 |   | 1,173,479 |   |
| **Total Revenue**                                         |       | 36,844,644                                                               |       | 9,867,624                                                               |       | 84,410,816 | ** ** | 19,196,615 |   |
| **EXPENSES:**                                             |       |                                                                     |       |                                                                    |       |   | ** ** | ** ** |   |
| Real estate taxes                                         |       | 4,644,059                                                                |       | 947,403                                                                 |       | 9,971,654 | ** ** | 1,968,796 |   |
| Other operating expenses                                  |       | 3,893,044                                                                |       | 852,507                                                                 |       | 8,742,613 | ** ** | 1,744,968 |   |
| Depreciation and amortization expense                     |       | 21,177,684                                                               |       | 4,887,968                                                               |       | 47,720,042 |   | 9,298,803 |   |
| Interest expense                                          |       | 9,812,560                                                                |       | 1,650,149                                                               |       | 18,357,649 |   | 3,194,753 |   |
| General and administrative expenses                       |       | 865,441                                                                  |       | 1,025,866                                                               |       | 2,294,216 |   | 1,664,971 |   |
| Asset management fees, related party                      |       | 2,936,685                                                                |       | 398,075                                                                 |       | 5,639,815 |   | 543,370 |   |
| **Total Expenses**                                        |       | 43,329,473                                                               |       | 9,761,968                                                               |       | 92,725,989 | ** ** | 18,415,661 |   |
| **Net Income (Loss) Before Minority Interest**            |       | (6,484,829                                                               | )          | 105,656                                                                 |       | (8,315,173 | ) | 780,954 |   |
| **Minority Interest**                                     |       | (287,141                                                                 | )          | —                                                                  |       | (283,840 | ) | — |   |
| **NET INCOME (LOSS)**                                     |       | $ (6,197,688                                                        | )          | $    105,656                                        |       | $ (8,031,333 | ) | $    780,954 |   |
| **WEIGHTED AVERAGE NUMBER OF  COMMON SHARES OUTSTANDING** |       |                                                                     |       |                                                                    |       |   | ** ** | ** ** |   |
| Basic                                                     |       | 104,223,534                                                              |       | 44,669,644                                                              |       | 89,147,083 |   | 30,315,854 |   |
| Diluted                                                   |       | 104,667,886                                                              |       | 44,689,644                                                              |       | 89,440,658 |   | 30,335,854 |   |
| **NET INCOME (LOSS) PER COMMON  SHARE**                   |       |                                                                     |       |                                                                    |       |   | ** ** | ** ** |   |
| Basic                                                     |       | $           (0.06 | )          | $           0.00 |       | $         (0.09 | ) | $           0.03 |   |
| Diluted                                                   |       | $           (0.06 | )          | $           0.00 |       | $         (0.09 | ) | $           0.03 |   |

 

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

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**Dividend Capital Trust Inc. and SubsidiariesCondensed ConsolidatedStatement of Shareholders’ Equity and Other Comprehensive LossFor the Nine Months Ended September 30, 2005(Unaudited)**

| ** **                                              | ** ** | ** **             | ** ** | ** **       | ** ** | ** **                | ** ** | **Accumulated**                  | ** **         | ** **             | ** ** |
|---------------------------------------------------------|------------|------------------------|------------|------------------|------------|---------------------------|------------|----------------------------------|--------------------|------------------------|------------|
| ** **                                              | ** ** | ** **             | ** ** | ** **       | ** ** | **Additional**            | ** ** | ** **                       | ** **         | **Other**              | ** ** | **Total** | ** ** |
| ** **                                              | ** ** | **Common Shares** | ** ** | **Paid-in**      | ** ** | **Distributions in** | ** ** | **Comprehensive**                | ** **         | **Shareholders’** | ** ** |
| ** **                                              | ** ** | **Shares**             | ** ** | **Amount**       | ** ** | **Capital**               | ** ** | **Excess of Earnings** | ** **         | **Loss**               | ** ** | **Equity** | ** ** |
| **Balances,  December 31, 2004**                   |       | 67,719,883             |       | $ 677,199   |       | $ 611,440,163        |       |                             | $ (26,635,877 | )                      |       |   | $ (4,267,682 | ) |   | $ 581,213,803 |   |
| Comprehensive loss:                                     |       |                   |       |             |       |                      |       |                             |               |                   |       |   |   |   |   |   |   |
| Net loss                                                |       | —                 |       | —           |       | —                    |       |                             | (8,031,333         | )                      |       |   | — |   |   | (8,031,333 | ) |
| Net unrealized  loss from cash flow hedging derivatives |       | —                 |       | —           |       | —                    |       |                             | —             |                   |       |   | (147,197 | ) |   | (147,197 | ) |
| Amortization of  cash flow hedging derivatives          |       | —                 |       | —           |       | —                    |       |                             | —             |                   |       |   | 379,348 |   |   | 379,348 |   |
| Comprehensive loss                                      |       |                   |       |             |       |                      |       |                             |               |                   |       |   |   |   |   | (7,799,182 | ) |
| Issuance of common  shares, net of offering costs       |       | 44,382,558             |       | 443,826          |       | 419,661,394               |       |                             | —             |                   |       |   | — |   |   | 420,105,220 |   |
| Redemption of  common shares                            |       | (533,726               | )          | (5,338           | )          | (5,177,338                | )          |                             | —             |                   |       |   | — |   |   | (5,182,676 | ) |
| Amortization of  stock options                          |       | —                 |       | —           |       | 25,267                    |       |                             | —             |                   |       |   | — |   |   | 25,267 |   |
| Dividends on  common shares                             |       | —                 |       | —           |       | —                    |       |                             | (42,672,104        | )                      |       |   | — |   |   | (42,672,104 | ) |
| **Balances,  September 30, 2005**                  |       | 111,568,715            |       | $ 1,115,687 |       | $ 1,025,949,486      |       |                             | $ (77,339,314 | )                      |       |   | $ (4,035,531 | ) |   | $ 945,690,328 |   |

 

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

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**DividendCapital Trust Inc. and SubsidiariesCondensed ConsolidatedStatements of Cash Flows(Unaudited)**

| ** **                                                                                | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2005**                                                              | ** ** | **2004** | ** ** |
| **OPERATING ACTIVITIES:**                                                                 |       |                                                                  |       |   |   |
| Net income (loss)                                                                         |       | $   (8,031,333                                         | )          | $        780,954 |   |
| Minority interest share of net loss                                                       |       | (283,840                                                              | )          | — |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                                                  |       |   |   |
| Real estate depreciation and amortization                                                 |       | 47,720,042                                                            |       | 9,298,803 |   |
| Other depreciation and amortization                                                       |       | 2,737,667                                                             |       | 644,896 |   |
| Increase in other assets                                                                  |       | (7,326,525                                                            | )          | (2,632,998 | ) |
| Loss on hedging activities                                                                |       | 71,850                                                                |       | — |   |
| Increase in accounts payable, accrued expenses and  other liabilities                     |       | 14,090,245                                                            |       | 3,483,454 |   |
| **Net cash provided by operating activities**                                             |       | 48,978,106                                                            |       | 11,575,109 |   |
| **INVESTING ACTIVITIES:**                                                                 |       |                                                                  |       |   |   |
| Real estate investments                                                                   |       | (553,042,780                                                          | )          | (212,093,714 | ) |
| (Increase) decrease in restricted cash                                                    |       | 4,854,224                                                             |       | (123,000,000 | ) |
| (Increase) decrease in deferred acquisition costs                                         |       | 3,489,878                                                             |       | (11,947,627 | ) |
| Increase in notes receivable                                                              |       | (5,500,000                                                            | )          | (4,314,000 | ) |
| Master lease payments                                                                     |       | 2,662,622                                                             |       | 1,560,548 |   |
| **Net cash used in investing activities**                                                 |       | (547,536,056                                                          | )          | (349,794,793 | ) |
| **FINANCING ACTIVITIES:**                                                                 |       |                                                                  |       |   |   |
| Net proceeds from line of credit                                                          |       | 12,000                                                                |       | 3,403,000 |   |
| Proceeds from mortgage notes                                                              |       | 60,926,055                                                            |       | — |   |
| Principal payments on mortgage notes                                                      |       | (1,945,361                                                            | )          | (566,126 | ) |
| Proceeds from financing obligations                                                       |       | 91,516,116                                                            |       | 14,906,604 |   |
| Principal payments on financing obligations                                               |       | (891,090                                                              | )          | (82,491 | ) |
| Proceeds from short-term borrowings                                                       |       | 80,000,000                                                            |       | — |   |
| Payments on short-term borrowings                                                         |       | (80,000,000                                                           | )          | — |   |
| Increase in deferred loan costs                                                           |       | (8,846,114                                                            | )          | (4,617,961 | ) |
| Proceeds from sale of common shares                                                       |       | 444,534,160                                                           |       | 393,646,614 |   |
| Offering costs for issuance of common shares,  related party                              |       | (42,674,177                                                           | )          | (37,449,183 | ) |
| Redemption of common shares                                                               |       | (5,182,676                                                            | )          | (99,199 | ) |
| Increase in restricted cash                                                               |       | (4,249,086                                                            | )          | — |   |
| Settlement of cash flow hedging derivative                                                |       | (2,111,427                                                            | )          | — |   |
| Distributions to common shareholders                                                      |       | (16,396,933                                                           | )          | (4,127,336 | ) |
| Distributions to minority interests                                                       |       | (58,671                                                               | )          | — |   |
| **Net cash provided by financing activities**                                             |       | 514,632,796                                                           |       | 365,013,922 |   |
| **NET  INCREASE IN CASH AND CASH EQUIVALENTS**                                            |       | $  16,074,846                                               |       | $  26,794,238 |   |
| **CASH AND CASH EQUIVALENTS, beginning of period**                                        |       | $  23,520,267                                               |       | $     4,076,642 |   |
| **CASH AND CASH EQUIVALENTS, end of period**                                              |       | $  39,595,113                                               |       | $  30,870,880 |   |
| **Supplemental Disclosures of  Cash Flow Information**                                    |       |                                                                  |       |   |   |
| Cash paid for interest expense                                                            |       | $  16,948,389                                               |       | $     2,506,521 |   |
| Assumption of secured debt in connection with real  estate acquired                       |       | $ 436,058,177                                                    |       | $  44,410,729 |   |
| Amount issued  pursuant to the distribution reinvestment plan                             |       | $  19,151,326                                               |       | $     4,691,698 |   |

 

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

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**DividendCapital Trust Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)**

**Note1—Organization and Summary of Significant Accounting Policies**

***Organization***

Dividend Capital Trust Inc., was formed as aMaryland corporation in April 2002 in order to invest in commercial realestate properties, consisting primarily of high-quality, generic distributionwarehouses and light industrial properties net leased to creditworthy corporatecustomers. We have qualified as a real estate investment trust (“REIT”) forfederal tax purposes commencing with our taxable year ended December 31,2003. We are structured as an umbrella partnership REIT (“UPREIT”) under whichsubstantially all of our current and future business is and will be conductedthrough a majority owned subsidiary, Dividend Capital Operating Partnership LP(our partnership), a Delaware limited partnership, and certain wholly ownedsubsidiaries of our partnership. As used herein, “Dividend Capital”, “we” and “us”refer to Dividend Capital Trust Inc. and its consolidated subsidiaries exceptwhere the context otherwise requires.

Our day to day activitiesare managed by Dividend Capital Advisors LLC (our advisor), an affiliate, underthe terms and conditions of an advisory agreement. Our advisor is currentlymajority owned and/or controlled by three of our directors and certain officersand/or their affiliates and other third parties. In addition, under the termsof certain dealer manager agreements, Dividend Capital Securities LLC (the “DealerManager”) serves as the dealer manager of our public and private offerings. TheDealer Manager is currently majority owned and/or controlled by three of ourdirectors and certain officers and/or their affiliates and other third parties.Our advisor and the Dealer Manager receive compensation and fees for servicesrelating to our offerings and for the investment and management of our assets(see “Note 8—Related Party Transactions”).

***Summary of Significant Accounting Policies***

*Interim FinancialInformation*

The accompanying unauditedcondensed consolidated financial statements have been prepared in accordancewith United States generally accepted accounting principles (“GAAP”) and withthe instructions to Form 10-Q and Article 10 of Regulation S-Xfor interim financial information. Accordingly, these statements do not includeall of the information and footnotes required by GAAP for complete financialstatements. In the opinion of management, the accompanying unaudited condensedconsolidated financial statements include all adjustments, consisting only ofnormal recurring items necessary for their fair presentation in conformity withGAAP. Interim results are not necessarily indicative of results for a full year.The information included in this Form 10-Q should be read inconjunction with our audited consolidated financial statements as of December 31,2004, and related notes thereto.

*Principles ofConsolidation*

Our financial statementsand the financial statements of our controlled subsidiaries are consolidated inthe accompanying condensed consolidated financial statements. All significantintercompany accounts and transactions have been eliminated in consolidation.

*Reclassifications*

Certain items in the condensed consolidated financialstatements for 2004 have been reclassified to conform with the current period’spresentation.

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*Use of Estimates*

The preparation ofcondensed consolidated financial statements in conformity with GAAP requiresmanagement to make estimates and assumptions relating to the reported amountsof assets and liabilities and the disclosure of contingent assets andliabilities at the date of the consolidated financial statements and thereported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates. Estimates and assumptions arereviewed periodically and the effects of revision are reflected in the periodthey are determined to be necessary.

*Investment in RealEstate*

We capitalize direct costs associated with theacquisition, development or improvement of real estate, including acquisitionfees paid to our advisor. Costs associated with acquisition or developmentpursuits are capitalized as incurred and if the pursuit is abandoned, these costsare expensed in the period in which the pursuit is abandoned. Holding costsassociated with development projects are capitalized as part of the developmentcosts, including interest costs, pursuant to Statement of Financial AccountingStandards (“SFAS”) No. 34 “*Capitalized Interest*.”

Upon acquisition, the total estimated cost of aproperty is allocated to land, building, land improvements, tenant improvementsand intangible lease assets and liabilities pursuant to SFAS No. 141, *“Business Combinations”*SFAS No. 141. The allocation ofthe total estimated cost to land, building, land improvements and tenantimprovements is based on our estimate of each property’s fair value based onall available information such as appraisals, property condition reports andother related information. Pursuant to SFAS No. 141, the differencebetween the fair value and the face value of debt assumed in an acquisitionshould be recorded as a premium or discount and amortized to interest expenseover the life of the debt assumed. The valuation of assumed liabilities isbased on the current market rate for similar liabilities. The allocation of thetotal estimated cost of a property to an intangible lease asset includes thevalue associated with the in-place leases which may include estimates forleasing commissions, legal and other costs. In addition, the allocation of thetotal cost of a property requires allocating costs to an intangible asset orliability resulting from in-place leases being above or below the market rentalrates on the date of the acquisition. This asset or liability will be amortizedover the life of the remaining in-place leases as an adjustment to rentalrevenue.

Realestate, including land, building, building and land improvements, tenantimprovements and leasing costs, and intangible lease assets and liabilities arestated at historical cost less accumulated depreciation and amortization. Depreciationand amortization is computed on a straight-line basis over the estimated usefullives as follows:

| Description                                  | ** ** | ** **                          | ** ** | **Standard Depreciable Life** |
|----------------------------------------------|------------|-------------------------------------|------------|-------------------------------|
| Land                                         |       | Not  depreciated                    |
| Building                                     |       | 40 years                            |
| Building improvements  and land improvements |       | 5 to 20 years                       |
| Tenant improvements and  leasing costs       |       | Term of lease                       |
| Intangible lease assets  and liabilities     |       | Average term of leases for building |
| Above/below market rent  assets/liabilities  |       | Term of lease                       |

 

The table above reflectsthe standard depreciable lives typically used to compute depreciation andamortization. However, such depreciable lives may be different based on theestimated useful life of such assets or liabilities. Maintenance and repairexpenditures are expensed as incurred and improvements are capitalized. Thecost of assets sold or retired and the related accumulated depreciation and/or 

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amortizationis removed from the accounts and the resulting gain or loss is reflected inoperations in the period in which such sale or retirement occurs.

*Cash and CashEquivalents*

Cash and cash equivalentsinclude cash held in financial institutions and other highly liquid short-terminvestments with original maturities of three months or less.

*Restricted Cash*

Restricted cash includescertain cash held in escrow for such things as property acquisitions, utilitydeposits, real estate tax payments, issuance of mortgage debt and collateralfor hedging instruments.

*Long-lived Assets*

Long-lived assets to beheld and used will be reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. We periodically evaluate the recoverability of our long-livedassets based on estimated future cash flows and the estimated liquidation valueof such long-lived assets, and provide for impairment if such undiscounted cashflows are insufficient to recover the carrying amount of the long-lived asset.If impaired, the long-lived asset will be written down to its estimated fairvalue.

*Debt*

Debt consists of fixed andvariable rate secured mortgage debt and a senior secured revolving creditfacility. The fixed rate secured mortgage debt includes a premium, net ofaccumulated amortization, of $10.1 million as of September 30, 2005.

*ComprehensiveIncome (Loss)*

Comprehensive income (loss)is comprised of net loss, net unrealized loss in cash flow hedging derivativesand amortization of hedging derivatives, which for the nine months ended September 30,2005 were approximately $8.0 million, $147,000 and $379,000, respectively.We report comprehensive income (loss) in our condensed consolidated statementof shareholders’ equity and other comprehensive income (loss). Amounts reportedin accumulated other comprehensive income (loss) related to settled andassigned hedging transactions will be amortized to interest expense over thelife of our hedged debt issuance(s). Changes in the fair value of unsettledhedging transactions are reflected in accumulated other comprehensive income(loss). Any ineffectiveness, as defined by SFAS No. 133 (defined below),related to our hedging transactions are recorded in our statements ofoperations. During the nine months ended September 30, 2005, there was arealized loss of approximately $72,000 related to ineffectiveness on ourhedging activities and there was a gain of approximately $546,000 recognizedduring the three and nine months ended September 30, 2004 related toineffectiveness of hedging activities (see “Note 4—Hedging Activities”).

*Derivative Instrumentsand Hedging Activities*

SFAS No. 133, “*Accounting for Derivative Instruments and HedgingActivities”*(“SFAS No. 133”), as amended and interpreted,establishes accounting and reporting standards for derivative instruments,including certain derivative instruments embedded in other contracts, and forhedging activities. As required by SFAS No. 133, we record all derivativeson the balance sheet at fair value. Accounting for changes in the fair value ofderivatives depends on the intended use of the derivative and the designationof the derivative. Derivatives used to hedge exposure to changes in the fairvalue of an asset, liability, or firm commitments attributable to a particularrisk are considered “fair value” hedges. Derivatives used to 

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hedgeexposure to variability in expected future interest payments, or other types offorecasted transactions, are considered “cash flow” hedges. As of September 30,2005, none of our derivatives were designated as fair value hedges.

For derivatives designatedas cash flow hedges, the changes in the fair value of the derivative thatrepresent changes in expected future cash flows that are effectively hedged bythe derivative are initially reported in other comprehensive income (loss) onthe balance sheet (i.e., not included in earnings) until the derivative issettled. Upon settlement, the effective portion of the cash flow hedge isrecognized in other comprehensive income and amortized over the term ofdesignated cash flow or transaction the derivative was intended to hedge. Anychange in value of the derivative that is deemed to be ineffective is chargeddirectly to earnings when the determination of ineffectiveness is made. Weassess the effectiveness of each cash flow hedge relationship by comparing thechanges in fair value or cash flows of the derivative hedging instrument withthe changes in fair value or cash flows of the designated hedged item ortransaction. We do not use derivatives for trading or speculative purposes andwe currently do not have any derivatives that are not designated as cash flowhedges.

Our objective in usingderivatives is to add stability to interest expense and to manage our exposureto interest rate movements. To accomplish this objective, we primarily usetreasury locks in our cash flow hedging strategy. A treasury lock is designedto mitigate the risk of future interest rate fluctuations by providing a futurefixed interest rate for a limited, pre-determined period of time. During thenine months ended September 30, 2005 and 2004, such derivatives were usedto hedge the variability in future interest expense associated with forecastedissuances of debt. On October 20, 2005, we settled all of our outstandinghedges for cash (see “Note 4—Hedging Activities”).

*Revenue Recognition*

We record rental revenuefor the full term of each lease on a straight-line basis. Certain propertieshave leases that provide for customer occupancy during periods that no rent isdue or where minimum rent payments increase during the term of the lease.Accordingly, we record a receivable from customers that we expect to collectover the remaining lease term rather than currently, which is recorded as straight-linerent receivable in the accompanying condensed consolidated balance sheets. Whenwe acquire a property, the term of existing leases is considered to commence asof the acquisition date for the purposes of this calculation. For the three andnine months ended September 30, 2005, the total increase to rentalrevenues due to straight line rent adjustments was $1.4 million and $3.0 million,respectively. For the three and nine months ended September 30, 2004, thetotal increase to rental revenues due to straight line rent adjustments wasapproximately $628,000 and $1.0 million, respectively.

In connection withproperty acquisitions, we may acquire leases with rental rates above and/orbelow the market rental rates measured at the date of acquisition. Suchdifferences are recorded as an intangible asset or liability pursuant to SFAS No. 141and are amortized to rental revenues over the life of the respective leases.For the three and nine months ended September 30, 2005, the total netdecrease to rental revenues due to the amortization of above and below marketrents was approximately $643,000 and $1.5 million, respectively. The total netdecrease during the same periods in 2004 was approximately $291,000 and$369,000, respectively.

In connection with certainproperty acquisitions, we have entered into master lease agreements withvarious sellers whereby the sellers are obligated to pay monthly rent until theearlier of the expiration of the master lease agreement or commencement of rentfrom a new customer. For financial reporting purposes, rental payments undermaster lease agreements are reflected as a reduction of the basis of theunderlying property rather than rental revenue. For the three and nine monthsended September 30, 2005, total master lease payments were approximately$681,000 and $2.7 million, respectively. The total master lease paymentsearned during the same periods in 2004 were approximately $987,000 and $1.6million, respectively.

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During the nine monthsended September 30, 2005, we had a customer in a building located inAtlanta, Georgia terminate its lease early and pay an early termination fee ofapproximately $3.7 million. This lease termination as well as several othersresulted in a net gain of approximately $2.4 million on the earlytermination of leases and is included in the accompanying condensedconsolidated statement of operations for the nine months endedSeptember 30, 2005.

*Stock-BasedCompensation*

We have a stock-based employee compensation plan andan independent director compensation plan and we have entered into twosoliciting dealer warrant agreements with the Dealer Manager. We account forthese plans under the fair value recognition provisions of SFAS No. 123, “*Accounting for Stock-Based Compensation*,”(“SFAS No. 123”) and its related interpretations. As of September 30,2005, and December 31, 2004, we had 80,000 and 60,000 options,respectively, outstanding under the Director Stock Option Plan. As ofSeptember 30, 2005, and December 31, 2004, 107,500 options had beengranted under the Employee Stock Option Plan. As of September 30, 2005, wehad approximately 2.2 million soliciting dealer warrants outstanding pursuantto the aforementioned soliciting dealer warrant agreements. Options grantedunder both the Director Stock Option Plan and the Employee Stock Option Planare valued using the Black-Scholes option-pricing model and are amortized tosalary expense on a straight-line basis over the period during which the rightto exercise such options fully vests. Such expense is included in general andadministrative expenses on the accompanying condensed consolidated statementsof operations. Warrants issued pursuant to the soliciting dealer warrant agreementsare also valued using the Black-Scholes option-pricing model.

*Basic and DilutedNet Income (Loss) per Common Share*

Basic net income (loss)per common share is determined by dividing net income (loss) attributable tocommon shareholders by the weighted average number of common shares outstandingduring the period. Diluted net income (loss) per common share includes theeffects of potentially issuable common stock, but only if dilutive, includingthe presumed exchange of limited partnership units for common shares (see “Note7—Minority Interest”).

*New AccountingPronouncements*

In December 2004, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 123R, “*Share-Based Payment”*(“SFAS No. 123R”).This Statement is a revision of FASB Statement No. 123, “*Accounting for Stock-Based Compensation”.*SFAS No. 123R establishes standards for the accounting for transactions inwhich an entity exchanges its equity instruments for goods or services. It alsoaddresses transactions in which an entity incurs liabilities in exchange forgoods or services that are based on the fair value of the entity’s equityinstruments or that may be settled by the issuance of those equity instruments.This statement focuses primarily on accounting for transactions in which an entityobtains employee services in share-based payment transactions. SFAS No. 123Ris effective for public companies for the annual period beginning after December 15,2005. The adoption of SFAS No. 123R will require the unamortizedportion of any options issued prior to 2002 to be amortized over the remaininglife of those options. Management does not believe the adoption of SFAS No. 123Rwill have a material impact to our financial position, results of operations orcash flows.

In June 2005, theEmerging Issues Task Force (“EITF”) issued EITF 04-5, “*Determining Whether a General Partner, or the General Partners as aGroup, Controls a Limited Partnership or Similar Entity When the LimitedPartners Have Certain Rights*”. Under this consensus, a sole generalpartner is presumed to control a limited partnership (or similar entity) andshould consolidate that entity unless the limited partners possess kick-outrights or other substantive participating rights as described in EITF 96-16,“*Investor’s Accounting for an Investee When theInvestor has a Majority of the Voting Interest but the Minority*

9

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*Shareholderor Shareholders Have Certain Approval or Veto rights*”. As of June 29,2005, this consensus was effective immediately for all new or modified agreements,and effective beginning in the first reporting period that ends after December 15,2005 for all existing agreements. We adopted the consolidation requirements ofthis consensus in the third quarter of 2005 and such adoption did not have amaterial impact on our financial position, results of operations or cash flows.

**Note 2—Real Estate**

***Acquisitions***

During the nine monthsended September 30, 2005, we acquired 142 properties (104 of which wereacquired in the Cabot merger discussed below) located in 15 different markets,including 13 of our target markets, for a total estimated cost of approximately$998.0 million, including acquisition fees paid to our advisor. Theseproperties were acquired using net proceeds from our public and privateofferings, proceeds from our secured revolving credit facility and short-term,unsecured debt (which, as of September 30, 2005, had been repaid with netproceeds from our offerings), and the assumption of approximately $436.1million in mortgage debt (see “Note 3—Debt”).

***Merger with Cabot Industrial Value Fund, Inc. andSubsequent Acquisitions and Dispositions by Cabot Industrial Value Fund, LP***

We entered into an agreement dated June 17, 2005(the “Agreement”) with Cabot Industrial Value Fund, Inc. (“Cabot”), anunrelated, privately held third party, to acquire by merger all of theoutstanding shares of Cabot’s common stock. Our advisor and its affiliatessubsequently acquired a less than 0.1% interest in Cabot in August 2005(see “Note 7—Minority Interest”).

Pursuant to the Agreement, on July 21, 2005, wecompleted the merger and, through our ownership of Cabot, we acquired anapproximate 87% interest in Cabot IndustrialValue Fund, LP (the “Cabot Partnership”) which, as of September 30, 2005,owned a portfolio of 104 properties with a total estimated value ofapproximately $643.9 million, including an acquisition fee paid to our advisor.We completed the merger and thereby obtained our 87% interest in the CabotPartnership for a total investment of approximately $564.0 million, whichincludes an acquisition fee of approximately $5.6 million paid to our advisor. Thisacquisition was funded using net proceeds from our public and privateofferings, proceeds from the issuance of $80 million of short-term, unsecureddebt, draws on our secured revolving credit facility of $65 million and theassumption of our portion of approximately $309 million of existing debt. Theresults of operations of Cabot from July 21, 2005 through September 30,2005 are included in the accompanying condensed consolidated statements ofoperations.

Cabot is structured as an UPREIT whereby it is thesole general partner of the Cabot Partnership, the subsidiary through which allof the Cabot properties are owned and operated. The remaining interest in theCabot Partnership continues to be owned by Cabot Industrial Fund Manager, LLC,the previous general partner of the Cabot Partnership (the “Manager”), andother limited partners. At closing, we entered into an agreement whereby wehave the option to acquire the remaining interests in the Cabot Partnership.Through this agreement, the remaining limited partners, including the Manager,have an initial option to put the remaining interests to the Company beginning April 1,2006 and ending July 1, 2006 at a price subject to certain adjustments,equal to approximately $42.6 million and we have an initial option to callthe remaining interests beginning April 1, 2007 and ending July 1,2007 at the same price as adjusted in accordance with the consumer price index.Subsequent to these initial options, the limited partners and we will continueto have put and call options and the price of such remaining interests would bebased upon fair value (see “Note 7—Minority Interest”).

On August 1, 2005, the Cabot Partnership,pursuant to a purchase and sale agreement dated August 27, 2004, completedthe acquisition of the 6804-6930 South 212th Street bulkdistribution facility for 

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total consideration ofapproximately $12.9 million. 6804-6930 South 212th Street islocated in Kent, Washington, a sub-market of Seattle, and is comprised of182,480 rentable square feet and was 100% leased as of September 30, 2005.

On August 15, 2005, the Cabot Partnershipcompleted the disposition of Helen Street, a 792,595 square foot bulkdistribution center located in New Jersey. The purchase and sale agreement wasentered into on July 8, 2005, between the Cabot Partnership and anunrelated third party. The selling price of approximately $43.0 million wasnegotiated between the Cabot Partnership’s previous general partner and thethird party seller.

As of September 30,2005, the Cabot Partnership portfolio was comprised of 103 operating industrialbuildings and one building under construction located in 12 markets throughoutthe United States, representing 10.8 million square feet of gross leasablearea. The following table provides additional information about the portfolio,excluding development activity, as of September 30, 2005:

| **Market**  | ** ** | ** ** | ** ** | **Buildings** | ** ** | **Gross Leasable Area** | ** ** | **Occupancy** | ** ** |
|-------------|------------|------------|------------|---------------|------------|-----------------------------------|------------|---------------|------------|
| Atlanta     |       |       | 29         |          |       |                              | 1,457,171  |          |       |   | 83.2 | % |   |
| Baltimore   |       |       | 2          |          |       |                              | 292,689    |          |       |   | 100.0 | % |   |
| Boston      |       |       | 1          |          |       |                              | 164,900    |          |       |   | 47.8 | % |   |
| Charlotte   |       |       | 3          |          |       |                              | 345,956    |          |       |   | 100.0 | % |   |
| Chicago     |       |       | 6          |          |       |                              | 1,073,830  |          |       |   | 98.9 | % |   |
| Cincinnati  |       |       | 11         |          |       |                              | 1,496,773  |          |       |   | 67.6 | % |   |
| Columbus    |       |       | 3          |          |       |                              | 1,213,486  |          |       |   | 85.2 | % |   |
| Dallas      |       |       | 29         |          |       |                              | 2,249,498  |          |       |   | 92.6 | % |   |
| Los Angeles |       |       | 7          |          |       |                              | 725,432    |          |       |   | 81.6 | % |   |
| Miami       |       |       | 1          |          |       |                              | 65,669     |          |       |   | 100.0 | % |   |
| New Jersey  |       |       | 3          |          |       |                              | 483,338    |          |       |   | 100.0 | % |   |
| Seattle     |       |       | 8          |          |       |                              | 1,198,617  |          |       |   | 100.0 | % |   |
| Total       |       |       | 103        |          |       |                              | 10,767,359 |          |       |   | 87.8 | % |   |

 

Thefollowing unaudited pro forma information relating to our operations for thenine months ended September 30, 2005 and 2004 have been prepared toreflect the incremental effect of the Cabot merger and all other acquisitionsthat occurred after January 1, 2004 through July 21, 2005, the dateof the merger, as if such transactions had occurred as of January 1, 2004and were carried forward through September 30, 2005. As these acquisitionswere assumed to have been made on January 1, 2004, our shares outstandingas of July 21, 2005, the merger date, are also assumed to have been issuedand outstanding as of January 1, 2004 for purposes of calculating the pershare information.

| ** **                             | ** ** | **Nine Months Ended September 30,** | ** **  |
|----------------------------------------|------------|---------------------------------------------------------|-------------|
| ** **                             | ** ** | **2005**                                                | ** **  | **2004** | ** ** |
| Revenue                                |       | $                                                       | 122,427,800 |   | $ | 106,614,093 |   |
| Depreciation                           |       | 60,421,674                                              |        | 59,562,979 |   |
| Net loss                               |       | (12,623,351                                             | )           | (17,479,801 | ) |
| Loss per  share—basic and diluted |       | $                                                       | (0.13       | ) | $ | (0.18 | ) |
| Shares  outstanding:                   |       |                                                    |        |   |   |
| Basic                                  |       | 97,814,928                                              |        | 97,814,928 |   |
| Diluted                                |       | 98,259,280                                              |        | 98,259,280 |   |

 

This information is based,in part, on historical operating results including properties that werepreviously entirely or partially vacant and properties under development. Thisinformation is presented for illustrative purposes only and may not beindicative of the results that actually would have occurred if the 

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acquisitionshad been in effect on the dates indicated and this information is not intendedto be indicative of future operating results. 

***Joint Ventures and Development Projects***

Thefollowing table describes our joint venture and development projects as of September 30,2005:

| ** **                              | ** ** | **Location** | ** ** | **Number  of  Buildings** | ** ** | **Square Feet** | ** ** | **Estimated  Completion  Date** | ** **    | **Equity  Investment  As of  September 30,  2005** | ** ** | **Estimated  Total Cost  Total** | ** ** |
|-----------------------------------------|------------|--------------|------------|---------------------------|------------|----------------------|------------|---------------------------------|---------------|--------------------------------------------------------------|------------|---------------------------------------|------------|
| **Development Projects**                |       |         |       |                      |       |                 |       |                            |          |                                                         |       |                                  |       |   |   |   |   |   |   |
| Verizon Distribution  Center(3)         |       | Baltimore    |       |                      | 1          |                 |       |                            | 139,424       |                                                         |       | October 2005                     |       |   | $ | 24,842,502 |   |   | $ | 30,900,000 | (5) |
| SouthCreek IV  Distribution Facility(1) |       | Atlanta      |       |                      | 1          |                 |       |                            | 556,800       |                                                         |       | June 2007                        |       |   | $ | 5,763,390 |   |   | $ | 16,500,000 |   |
| **Forward Purchase Commitments**        |       |         |       |                      |       |                 |       |                            |          |                                                         |       |                                  |       |   |   |   |   |   |   |
| Buford Distribution  Center(2)          |       | Atlanta      |       |                      | 2          |                 |       |                            | 677,667       |                                                         |       | January 2006                     |       |   | $ | 95,561 |   |   | $ | 29,000,000 |   |
| Deltapoint Park(2)                      |       | Memphis      |       |                      | 1          |                 |       |                            | 885,000       |                                                         |       | January 2006                     |       |   | $ | 45,484 |   |   | 26,700,000 |   |
| **Corporate Loans**                     |       |         |       |                      |       |                 |       |                            |          |                                                         |       |                                  |       |   |   |   |   |   |   |
| Plainfield                              |       | Plainfield   |       |                      | 2          |                 |       |                            | 1,033,566     |                                                         |       | January 2006                     |       |   | $ | 4,368 000 |   |   | — | (4) |
| Riverside                               |       | Los Angeles  |       |                      | 1          |                 |       |                            | 953,132       |                                                         |       | September 2006                   |       |   | $ | 1,430,700 |   |   | — | (4) |
| Goodson                                 |       | Atlanta      |       |                      | 1          |                 |       |                            | 744,000       |                                                         |       | January 2006                     |       |   | $ | 3,940,000 |   |   | — | (4) |
| **Total**                               | ** ** | ** **   | ** ** | ** **                | **9**      | ** **           | ** ** | ** **                      | **4,989,589** | ** **                                                   | ** ** | ** **                            | ** ** | ** ** | **$** | **40,485,637** |   |   | $ | 103,100,000 | ** ** |

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(1)             These joint ventures are with anunaffiliated third party.

(2)             For a description of this forward capitalcommitment, see “Management’s Discussion and Analysis of Financial Conditionand Results of Operations.”

(3)             We acquired this development project inconnection with the Cabot acquisition.

(4)             These loans were respectively used to funddevelopment projects for which the estimated total costs are not readilydeterminable. However, pursuant to a strategic relationship we entered intowith a third party developer, we have committed to fund up to $15 million intovarious development projects including the Plainfield, Riverside and Goodsondevelopment projects.

(5)             We anticipate that the total estimatedcost of this project will exceed $30,900,000. However, pursuant to our tenant’slease agreement, our tenant is obligated to reimburse us for any excess costs.

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**Note 3—Debt**

As of September 30,2005, and December 31, 2004, our debt consisted of the following:

| ** **                                               | ** ** | **Assumption/**     | ** ** | **Stated**   | ** ** | **Effective** | ** ** | ** **   | ** ** | **Outstanding Balance as of** | ** ** |
|----------------------------------------------------------|------------|---------------------|------------|--------------|------------|---------------|------------|--------------|------------|----------------------------------------------|------------|
| ** **                                               | ** ** | **Issuance**        | ** ** | **Interest** | ** ** | **Interest**  | ** ** | **Maturity** | ** ** | **September 30,**                       | ** ** | **December 31,** | ** ** |
| ** **                                               | ** ** | **Date**            | ** ** | **Rate**     | ** ** | **Rate(5)**   | ** ** | **Date**     | ** ** | **2005**                                     | ** ** | **2004** | ** ** |
| Secured Mortgage Debt:                                   | ** ** | ** **          | ** ** |         | ** ** | ** **    |       |         | ** ** | ** **                                   |       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| New York Life                                            |       | December 2003  |       |         | 5.00       | **%**         |       |         | 5.00       | **%**                                        |       | March 2011 |   | $ | 39,434,352 |   | $ | 39,953,415 |   |
| ING Investment  Management(1)                            |       | December 2004  |       |         | 5.31       | **%**         |       |         | 5.34       | **%**                                        |       | January 2015 |   | 55,000,000 |   | 55,000,000 |   |
| ING Investment  Management(1)                            |       | January 2005   |       |         | 4.40       | **%**         |       |         | 5.42       | **%**                                        |       | January 2010 |   | 57,000,000 |   | — |   |
| ING Investment  Management                               |       | September 2005 |       |         | 4.97       | **%**         |       |         | 4.97       | **%**                                        |       | October 2013 |   | 3,926,055 |   | — |   |
| Assumed Secured Mortgage  Debt(2):                       |       |                |       |         |       | ** **    |       |         |       | ** **                                   |       |   |   |   |   |   |   |
| Principal                                                |       | June 2004      |       |         | 7.08       | **%**         |       |         | 4.81       | **%**                                        |       | July 2008 |   | 16,829,922 |   | 17,174,107 |   |
| Principal                                                |       | June 2004      |       |         | 7.21       | **%**         |       |         | 4.81       | **%**                                        |       | July 2008 |   | 11,421,774 |   | 11,570,162 |   |
| Prudential                                               |       | June 2004      |       |         | 6.40       | **%**         |       |         | 6.09       | **%**                                        |       | November 2012 |   | 12,700,000 |   | 12,700,000 |   |
| Principal                                                |       | November 2004  |       |         | 6.22       | **%**         |       |         | 4.18       | **%**                                        |       | September 2012 |   | 3,779,808 |   | 3,838,755 |   |
| Legacy                                                   |       | February 2005  |       |         | 7.40       | **%**         |       |         | 5.21       | **%**                                        |       | December 2017 |   | 1,444,423 |   | — |   |
| Prudential                                               |       | March 2005     |       |         | 5.69       | **%**         |       |         | 5.22       | **%**                                        |       | December 2013 |   | 8,119,076 |   | — |   |
| State Farm                                               |       | March 2005     |       |         | 6.72       | **%**         |       |         | 5.62       | **%**                                        |       | November 2022 |   | 12,511,438 |   | — |   |
| Column  Financial, Inc.                             |       | April 2005     |       |         | 6.30       | **%**         |       |         | 5.18       | **%**                                        |       | September 2012 |   | 27,238,384 |   | — |   |
| John Hancock                                             |       | April 2005     |       |         | 6.91       | **%**         |       |         | 5.25       | **%**                                        |       | September 2013 |   | 6,249,862 |   | — |   |
| TIAA                                                     |       | May 2005       |       |         | 8.50       | **%**         |       |         | 4.71       | **%**                                        |       | October 2008 |   | 8,095,807 |   | — |   |
| Fortis Benefits  Insurance Co.                           |       | May 2005       |       |         | 7.25       | **%**         |       |         | 4.70       | **%**                                        |       | July 2008 |   | 2,513,431 |   | — |   |
| ING Investment  Management                               |       | June 2005      |       |         | 4.89       | **%**         |       |         | 4.73       | **%**                                        |       | February 2008 |   | 19,998,000 |   | — |   |
| Mass Mutual                                              |       | June 2005      |       |         | 6.79       | **%**         |       |         | 4.91       | **%**                                        |       | July 2011 |   | 4,706,383 |   | — |   |
| Key Bank                                                 |       | July 2005      |       |         | 6.44       | **%**         |       |         | 4.72       | **%**                                        |       | October 2012 |   | 7,204,381 |   | — |   |
| Key Bank                                                 |       | July 2005      |       |         | 6.84       | **%**         |       |         | 4.72       | **%**                                        |       | September 2012 |   | 8,347,182 |   | — |   |
| Transamerica                                             |       | July 2005      |       |         | 6.97       | **%**         |       |         | 4.75       | **%**                                        |       | June 2013 |   | 11,529,337 |   | — |   |
| Assumed Secured Mortgage Debt of Consolidated Investees: |       |                |       |         |       | ** **    |       |         |       | ** **                                   |       |   |   |   |   |   |   |
| Nationwide                                               |       | July 2005      |       |         | 5.06       | **%**         |       |         | 5.06       | **%**                                        |       | January 2011 |   | 57,494,000 |   | — |   |
| Nationwide                                               |       | July 2005      |       |         | 4.72       | **%**         |       |         | 4.72       | **%**                                        |       | April 2011 |   | 50,150,000 |   | — |   |
| Jackson                                                  |       | July 2005      |       |         | 5.16       | **%**         |       |         | 5.16       | **%**                                        |       | July 2012 |   | 62,740,000 |   | — |   |
| Jackson                                                  |       | July 2005      |       |         | 4.91       | **%**         |       |         | 4.91       | **%**                                        |       | April 2012 |   | 62,600,000 |   | — |   |
| New York Life                                            |       | July 2005      |       |         | 4.79       | **%**         |       |         | 4.79       | **%**                                        |       | October 2011 |   | 50,549,095 |   | — |   |
| New York Life                                            |       | July 2005      |       |         | 4.90       | **%**         |       |         | 4.90       | **%**                                        |       | October 2011 |   | 25,236,655 |   | — |   |
| Weighted  Avg./Totals(3)                                 |       |                |       |         | 5.34       | **%**         |       |         |       | ** **                                   |       |   |   | $ | 626,819,365 |   | $ | 140,236,439 |   |
| Premiums, Net of  Amortization(2)                        |       |                |       |         |       | ** **    |       |         |       | ** **                                   |       |   |   | 10,055,609 |   | 2,518,329 |   |
| Carrying Value of  Debt                                  |       |                |       |         |       | ** **    |       |         | 5.05       | **%**                                        |       |   |   | $ | 636,874,974 |   | $ | 142,754,768 |   |
| Senior Secured Revolving  Credit Facility(4)             |       |                |       |         |       | ** **    |       |         |       | ** **                                   |       |   |   |   |   |   |   |
| JP Morgan                                                |       | October 2003   |       |         | 6.75       | **%**         |       |         | 6.75       | **%**                                        |       | February 2007 |   | $ | 16,000 |   | $ | 4,000 |   |

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(1)             We assigned certain treasury lock hedgingtransactions to these notes. Pursuant to SFAS No. 133 (see “Note 1—Organizationand Summary of Significant  AccountingPolicies”, the fair value of these hedging instruments will be amortized tointerest expense over the life of the assigned notes.

(2)             These mortgages were assumed inconjunction with the acquisition of properties and, pursuant to SFAS No. 141(see “Note 1—Organization and Summary of Significant Accounting Policies”),the difference between the fair value and the face value of these notes at thedate of acquisition is reflected as a premium or discount which will beamortized to interest expense over the remaining life of the underlying note.

(3)             Weighted-average interest rates are basedupon outstanding balances as of September 30, 2005.

(4)             Our senior secured revolving creditfacility bears interest at either prime (6.75% at September 30, 2005) or,at our election, LIBOR plus 1.125% to 1.500%.

(5)             Reflects the impact to interest rates ofGAAP adjustments for purchase price allocation and hedging transactions. Theserates do not reflect the impact of other interest expense items such as feesand the amortization of loan costs.

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In January 2005, we entered into $57.0 million ofsecured, non-recourse debt with a stated fixed interest rate of 4.40% whichmatures in 2010. The underlying notes require monthly payments of interest onlyuntil January 1, 2006 at which time monthly payments of principal andinterest will be required. In September 2005, we entered into anadditional $3.9 million of secured, non-recourse debt with a fixed interestrate of 4.97% which matures in October 2013. The underlying note requiresinterest only payments until April 1, 2007 at which time monthly paymentsof principal and interest will be required.

During the nine months ended September 30, 2005,we assumed eighteen secured, non-recourse notes, totaling $427.6 million,excluding premiums, in conjunction with the acquisition of certain properties(see “Note 2—Real Estate”). These assumed notes bear interest at fixed andvariable rates ranging from 4.72% to 8.50% and require monthly payments ofeither interest only or principal and interest. The maturity dates of suchassumed notes range from February 2008 to November 2022. We assumedsix of these notes totaling $308.8 million in connection with our merger withCabot Industrial Value Fund, Inc. on July 21, 2005 (see “Note 2—RealEstate”). Pursuant to SFAS No. 141, the difference between the fair valueand face value of these assumed notes at the date of acquisition resulted in apremium of approximately $8.5 million, which will be amortized to interestexpense over the remaining life of the underlying notes.

We have a senior secured revolving credit facilitywith a current capacity of $225 million with a syndicated group led by JPMorgan Securities (formerly BankOne). The credit facility currently bearsinterest at either LIBOR plus 1.125% to 1.500%, or, at our election, the primerate and is subject to an annual 0.250% facility fee. This credit facilitycontains various covenants including financial covenants regarding net worth,interest and fixed charge coverage and consolidated leverage. As of September 30,2005, we had an outstanding balance of $16,000 on our senior secured revolvingcredit facility.

As of September 30,2005, the gross book value of all our properties was approximately$1.8 billion and the gross book value of all properties securing our fixedrate mortgage debt and senior secured revolving credit facility wasapproximately $1.2 billion and $239.1 million, respectively. Our debthas various covenants and management believes we were in compliance with all ofthese covenants at September 30, 2005.

**Note 4—HedgingActivities**

We enter into forward treasury locks in anticipationof issuing future fixed rate debt to fund future property acquisitions. Weenter into such treasury locks to hedge our exposure to the variability ininterest rates and therefore mitigating the risk of changes in future paymentsof interest for anticipated fixed rate debt issuances over a maximum period of12 months (excluding forecasted transactions related to the payment of variableinterest on our existing senior secured revolving credit facility). As requiredby SFAS No. 133, we record all derivatives on the balance sheet at fairvalue. These forward treasury lock hedges have been designated as cash flowhedges for accounting purposes.

As of September 30, 2005, we had entered into atotal of eight cash flow hedging transactions, of which five have been settledfor cash. Of the five settled hedges, two have been attributed to fixed ratedebt and the balances of such hedges are being amortized to interest expenseover the life of the assigned debt and the fair value of the other threesettled hedges are recorded in other comprehensive loss until the anticipatedfuture fixed rate debt is issued, at which time such values will be amortizedover the life of the debt to interest expense. The three unsettled hedges arerecorded in other comprehensive loss at their fair value.

With respect to the three unsettled hedges, as of September 30,2005, one had a negative fair value of approximately $410,000 which is includedin other liabilities and the other two outstanding hedges had a positive fairvalue of approximately $762,000 and are included in other assets. As a resultof the change in fair value of the unsettled hedges, during the three and ninemonths ended September 30, 2005, we 

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recorded an unrealizedgain of approximately $4.0 million and an unrealized loss of approximately$147,000, respectively, to shareholders’ equity and comprehensive loss. Duringthe three and nine months ended September 30, 2004, we recorded an unrealizedloss of approximately $4.8 million and $4.3 million, respectively toshareholders’ equity and comprehensive income as a result of the change in fairvalue of the outstanding hedges. On October 20, 2005, all three of theremaining hedges were settled with a total payment to us of $1.6 million. Inaddition, on October 20, 2005, we locked interest rates on futureissuances of fixed rate debt thereby eliminating the variability in interestrate changes associated with certain forecasted debt issuances.

As of September 30,2005, and December 31, 2004, the accumulated other comprehensive lossbalance pertaining to the cash flow hedges was approximately $4.0 million and$4.3 million, respectively. Amounts reported in accumulated other comprehensiveloss related to cash flow hedges will be amortized to interest expense aspayments are made on our anticipated future debt issuance. During the next 12months, we estimate that approximately $735,000 will be amortized from othercomprehensive loss to interest expense resulting in an increase in our interestexpense.

**Note 5—Public Offerings**

On June 28, 2004, we filed our third registrationstatement with the Securities Exchange Commission (“SEC”) covering our thirdpublic offering of our common stock. This registration statement was declaredeffective by the SEC, and the offering commenced, on October 18, 2004. Thecommon stock was offered at a price of $10.50 per share for a maximum of40,000,000 shares. The registration statement also covered up to 13,000,000shares available pursuant to our distribution reinvestment plan. On June 24,2005, we concluded our third public offering having sold approximately 40.3million shares of our common stock for gross proceeds of approximately $421.2million.

Our fourth offering began immediately following thethird offering. The fourth registration statement was filed on January 24,2005 and was declared effective by the SEC on June 9, 2005, and wecommenced the offering on June 27, 2005. The registration statement coversa maximum of $1,000,000,000 in shares of our common stock to be sold, includingproceeds from our distribution reinvestment plan. Up to 72,770,273 shares arebeing offered to the public at a current price of $10.50 per share and up to23,650,339 shares are being offered to participants in our distributionreinvestment plan. We will continue to sell shares under this offering,providing capital primarily for investment in real estate. As of September 30,2005, we had sold 16,047,082 shares pursuant to our fourth public offering fortotal gross proceeds of approximately $167.5 million.

Through our publicofferings of common stock we have raised gross proceeds of $157.7 million and$463.3 million for the three and nine months ended September 30, 2005,respectively. During the three and nine months ended September 30, 2004,we raised gross proceeds of approximately $154.7 million and $401.2 millionpursuant to our public offerings.

**Note 6—Our Partnership’sPrivate Placement**

Our partnership is currently offering undividedtenancy-in-common interests in our properties to accredited investors in aprivate placement exempt from registration under the Securities Act. Weanticipate that these tenancy-in-common interests may serve as replacementproperties for investors seeking to complete like-kind exchange transactionsunder Section 1031 of the Internal Revenue Code. Additionally, thetenancy-in-common interests sold to investors will be 100% leased by ourpartnership, and such leases will contain purchase options whereby ourpartnership will have the right, but not the obligation, to acquire thetenancy-in-common interests from the investors at a later point in time inexchange for limited partnership units in our partnership under Section 721of the Internal Revenue Code.

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Our partnership will pay certain up-front fees andreimburse certain related expenses to our advisor, the Dealer Manager andDividend Capital Exchange Facilitators LLC (the “Facilitator”) for raisingcapital through the private placement. Our advisor is obligated to pay all ofthe offering and marketing related costs associated with the private placement.However, our partnership is obligated to pay our advisor a non-accountableexpense allowance which equals 2% of the gross equity proceeds raised throughthe private placement. In addition, our partnership is obligated to pay theDealer Manager a dealer manager fee of up to 1.5% of gross equity proceedsraised and a commission of up to 5% of gross equity proceeds raised through theprivate placement. The Dealer Manager may re-allow such commissions and aportion of such dealer manager fee to participating broker dealers. Ourpartnership is also obligated to pay a transaction facilitation fee to theFacilitator, an affiliate of our advisor, of up to 1.5% of gross equityproceeds raised through the private placement.

During the three and nine months ended September 30,2005, we raised approximately $55.2 million and $91.5 million,respectively, from the sale of undivided interests in our properties, which isincluded in financing obligations in the accompanying condensed consolidatedbalance sheets pursuant to SFAS No. 98 “*Accountingfor Leases*” (“SFAS No. 98”). During the same periods in 2004,we raised approximately $11.6 million and $14.9 million, respectively, from thesale of such interests. In accordance with SFAS No. 98, a portion of therental payments made by our partnership to owners of tenancy-in-commoninterests will be recognized by our partnership as interest expense using theinterest method.

During the three and nine months ended September 30,2005, our partnership incurred upfront costs of approximately $3.5 million and$6.6 million, respectively, payable to our advisor and other affiliatesfor affecting these transactions which are recorded as deferred loan costs.During the same periods in 2004, our partnership incurred upfront costs ofapproximately $933,000 and $1.2 million, respectively. Such deferred loan costsare amortized to interest expense over the life of the financing obligation. Ifour partnership elects to exercise any purchase option as described above andissue limited partnership units, the unamortized portion of the up-front feesand expense reimbursements paid to affiliates with respect to such transactionswill be recorded against shareholders’ equity as a selling cost of the limitedpartnership units. If our partnership does not elect to exercise any suchpurchase option, the unamortized portion of the up-front fees and expensereimbursements paid to affiliates with respect to such transactions will beconsidered in the calculation of a gain or loss on the sale of real estate.

On April 8, 2005,pursuant to its master lease agreement, our partnership exercised its option tobuy certain tenancy-in-common interests it had previously sold in a propertylocated in Memphis, Tennessee by issuing approximately 424,000 limitedpartnership units worth approximately $4.5 million. Such unit holders will havesubstantially the same economic interest as our common shareholders (see “Note7—Minority Interest”).

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**Note 7—Minority Interest**

Minorityinterest consists of the following as of:

| ** **                         | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Limited  partnership units:        |       |                             |       |                            |       |   |   |   |   |
| Net investment                     |       |                             | $          | 3,947,859                       |       |   |   | $ | — |   |   |
| Distributions                      |       |                             | (162,038   | )                               |       |   | — |   |   |
| Share of net loss                  |       |                             | (20,986    | )                               |       |   | — |   |   |
| Sub-total                          |       |                             | 3,764,835  |                            |       |   | — |   |   |
| Cabot limited  partnership units:  |       |                             |       |                            |       |   | — |   |   |
| Net investment                     |       |                             | 43,513,804 |                            |       |   | — |   |   |
| Distributions                      |       |                             | (3,199,832 | )                               |       |   |   |   |   |
| Share of net loss                  |       |                             | (262,457   | )                               |       |   | — |   |   |
| Sub-total                          |       |                             | 40,051,515 |                            |       |   | — |   |   |
| Cabot non-voting  common stock:    |       |                             |       |                            |       |   |   |   |   |
| Net investment                     |       |                             | 63,000     |                            |       |   | — |   |   |
| Share of net loss                  |       |                             | (397       | )                               |       |   | — |   |   |
| Sub-total                          |       |                             | 62,603     |                            |       |   | — |   |   |
| Limited  partnership Special Units |       |                             | 1,000      |                            |       |   | 1,000 |   |   |
| Total                              |       |                             | $          | 43,879,953                      |       |   |   | $ | 1,000 |   |   |

 

***Limited Partnership Units***

At September 30,2005, our partnership was over 99% owned by Dividend Capital and less than 1%by other non-affiliated limited partners (see “Note 6—Our Partnership’s PrivatePlacement”) and our advisor. After a period of one year, limited partnershipunits are redeemable at the option of the unit holder. We have the option ofredeeming the limited partnership units with cash or with common shares. Atinception (April 12, 2002), our partnership issued 20,000 limitedpartnership units to our advisor for gross proceeds of $200,000, whichcurrently represents less than a 0.1% ownership interest in our partnership.

***Cabot LimitedPartnership Units***

Pursuant to the Cabotmerger (see “Note 2—Real Estate”), the unaffiliated parties that were limitedpartners in the Cabot Partnership prior to the Cabot merger remained limitedpartners after the merger and these amounts are recorded as minority interest. As of September 30, 2005, the limitedpartners owned approximately 13% of the Cabot Partnership. On July 21,2005, we entered into an agreement whereby we have the option to acquire the remaininginterests in the Cabot Partnership. Through this agreement, the remaininglimited partners including the Manager, have an initial option to put theremaining interests to us beginning April 1, 2006 and ending July 1,2006 at a price, subject to certain adjustments, equal to approximately$42.6 million and we have an initial option to call the remaininginterests beginning April 1, 2007 and ending July 1, 2007 at the sameprice as adjusted in accordance with the consumer price index. Subsequent tothese initial options, the limited partners and we will continue to have putand call options and the price of such remaining interests would be based uponfair value. Income and losses of the Cabot Partnership are allocated pro ratabased on the partners’ ownership interests.

***Cabot Non-VotingCommon Stock***

In August 2005, ouradvisor and its affiliates acquired 126 shares of Cabot’s non-voting commonstock for a purchase price of $500 each or $63,000 in the aggregate. Ouradvisor purchased these shares on behalf ofits employees and other affiliates. The proceeds from the sale of thesenon-voting common shares were used to invest in the Cabot Partnership.Collectively, as of September 30, 2005, these non-voting shares of 

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common stock represent less than a 0.1% ownership ofCabot and the holders of these shares will participate in the dividends ofCabot in proportion to their respective ownership percentages.

***Limited PartnershipSpecial Units***

During 2002, our partnershipissued 10,000 Special Units to an affiliate of our advisor for consideration of$1,000. The holder of the Special Units does not participate in the profits andlosses of our partnership. Amounts distributable to the holder of the SpecialUnits will depend on operations and the amount of net sales proceeds receivedfrom property dispositions or upon other events. In general, after holders ofregular partnership interests in aggregate have received cumulativedistributions equal to their capital contributions plus a 7% cumulativenon-compounded annual pre-tax return on their net contributions, the holder ofthe Special Units and the holders of regular partnership interests will receive15% and 85%, respectively, of the net sales proceeds received by our partnershipupon the disposition of our partnership’s assets.

**Note8**—RelatedParty Transactions

***Advisory Agreement***

We have entered into anAdvisory Agreement with our advisor pursuant to which we pay certainacquisition and asset management fees to our advisor. Our advisor is considereda related party as certain indirect owners and employees of our advisor serveas our executives. The amount of such acquisition fees is equal to 1% of theaggregate purchase price of properties we acquire. During the three and ninemonths ended September 30, 2005, our advisor earned approximately $6.4million and $9.2 million, respectively, and, for the three and nine monthsended September 30, 2004, our advisor earned approximately $315,000 and$3.0 million, respectively, for acquisition fees which are accounted for aspart of the basis of the acquired properties.

We pay our advisor anasset management fee equal to 0.75% per annum of the total undepreciated costof the properties we own in excess of $170 million. During the three andnine months ended September 30, 2005, we incurred asset management fees of$2.9 million and $5.6 million, respectively. During the three and nine monthsended September 30, 2004, we incurred assets management fees ofapproximately $398,000 and $543,000, respectively.

Pursuant to the AdvisoryAgreement, our advisor is obligated to advance all of our organization andoffering and marketing related costs subject to its right to be reimbursed forsuch costs by us in an amount up to 2% of the aggregate gross offering proceedsraised. Such offering and marketing related costs include, but are not limitedto, actual legal, accounting, printing and other expenses attributable toorganizing Dividend Capital, preparing the SEC registration statements,qualification of the shares for sale in the states and filing fees incurred byour advisor, as well as reimbursements for marketing, salaries and directexpenses of its employees while engaged in registering and marketing theshares, other than selling commissions and the dealer manager fee (see below).

During the three and ninemonths ended September 30, 2005, our advisor incurred approximately $2.4 millionand $6.3 million, respectively, of organization and offering costs. During thethree and nine months ended September 30, 2004, our advisor incurredapproximately $2.0 million and $6.2 million, respectively, of offering andmarketing related costs. During the three and nine months endedSeptember 30, 2005, we reimbursed our advisor approximately $3.1 millionand $9.0 million, respectively, for such costs and, during the three and ninemonths ended September 30, 2004, we reimbursed our advisor approximately$3.1 million and $8.0 million, respectively. These amounts arereflected in equity as offering costs when incurred. As of September 30,2005, the net un-reimbursed amount of offering and marketing related costsincurred by our advisor, since inception (April 12, 2002), wasapproximately $2.2 million. If we are not successful in raising additionalamounts of equity proceeds, no additional amounts will be payable by us to ouradvisor for reimbursement of offering and marketing related costs.

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Our advisor is obligated to pay all of the offeringand marketing related costs associated with our partnership’s privateplacement. However, our partnership is obligated to pay our advisor anon-accountable expense allowance which equals 2% of the gross proceeds raisedthrough our partnership’s private placement. During the three andnine months ended September 30, 2005, our partnership incurredapproximately $1.4 million and $2.7 million, respectively, and,during the three and nine months ended September 30, 2004, our partnershipincurred approximately $409,000 and $1.5 million, respectively, payable toour advisor for such expense allowance.

In accordance with theAdvisory Agreement we are obligated, subject to certain limitations, toreimburse our advisor for certain other expenses incurred on our behalf forproviding services contemplated in the Advisory Agreement, provided that ouradvisor does not receive a specific fee for the activities which generate theexpenses to be reimbursed. For the three and nine months endedSeptember 30, 2005, we have reimbursed approximately $120,000 and$292,000, respectively for such costs. For the three and nine months endedSeptember 30, 2004, we reimbursed our advisor approximately $103,000 and$173,000, respectively, for such expenses.

As of September 30, 2005 and December 31,2004, we owed our advisor approximately $1.5 million and $576,000,respectively, for various fees and reimbursements as described above which isincluded in other liabilities on the accompanying condensed consolidatedbalance sheets.

***Dealer Manager Agreement***

We have entered into a Dealer Manager Agreement withthe Dealer Manager pursuant to which we pay a dealer manager fee of up to 2.0%of gross offering proceeds raised pursuant to our public offerings to theDealer Manager as compensation for managing the offering. The Dealer Managermay re-allow a portion of such fees to broker-dealers who participate in theoffering. We also pay up to a 6% sales commission of gross offering proceedsraised pursuant to our public offerings. As of September 30, 2005, allsales commissions had been re-allowed to participating broker-dealers. For thethree and nine months ended September 30, 2005, we incurred approximately$11.6 million and $34.2 million, respectively, and, for the three and ninemonths ended September 30, 2004, we incurred approximately $11.6 millionand $30.7 million, respectively, payable to the Dealer Manager for dealermanager fees and sales commissions. Such amounts are included as a reduction ofadditional paid-in capital on the accompanying condensed consolidated balancesheets.

We have also entered into a dealer manager agreementwith the Dealer Manager pursuant to which we pay a dealer manager fee of up to1.5% of the gross proceeds raised through our partnership’s private placement.We also pay the Dealer Manager a sales commission of up to 5.0% of the grossproceeds raised through our partnership’s private placement. As of September 30,2005, substantially all of the sales commissions were re-allowed toparticipating broker-dealers who are responsible for affecting sales. For thethree and nine months ended September 30, 2005, we incurred up front feesof approximately $2.3 million and $4.3 million, respectively, and,for the three and nine months ended September 30, 2004, we incurred upfront fees of approximately $589,000 and $735,000, respectively, payable to theDealer Manager for dealer manager fees and sales commissions. Such amounts areincluded in deferred loan costs on the accompanying condensed consolidatedbalance sheets.

Pursuant to our first and second public offerings, theDealer Manager earned one soliciting dealer warrant for every 25 shares sold. Theholder of a soliciting dealer warrant has the right to purchase one share ofcommon stock for $12. In September 2005, our board of directors authorizedthe issuance of approximately 2.2 million soliciting dealer warrants to theDealer Manager representing all of the warrants the Dealer Manager earned in connectionwith our first and second public offerings. Pursuant to SFAS No. 123, wevalued these warrants using the Black-Scholes option-pricing model, and basedon our historical volatility, these warrants had a nominal value. No warrantswere offered in our third public 

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offering and no warrantsare being offered in our fourth public offering. During the nine months ended September 30,2005, the Dealer Manager did not earn any soliciting dealer warrants as allshares sold during such period were in connection with our third and fourthpublic offerings (see “Note 5—Public Offerings”).

As of September 30,2005 and December 31, 2004, we owed the Dealer Manager approximately $956,000and $828,000, respectively, in relation to the fees described above which isincluded in other liabilities on the accompanying condensed consolidatedbalance sheets.

***Facilitator Agreement***

We have entered into anagreement with the Facilitator whereby we pay a transaction facilitation feeassociated with our partnership’s private placement. We pay the Facilitator upto 1.5% of the gross equity proceeds raised through our partnership’s privateplacement for transaction facilitation. For the three and nine months ended September 30,2005, we incurred approximately $523,000 and $1.0 million, respectively, and,for the three and nine months ended September 30, 2004, we incurredapproximately $140,000 and $173,000, respectively, payable to the Facilitatorfor such fees. In accordance with SFAS No. 98, these fees, as well as theother fees associated with our partnership’s private placement, are recorded asdeferred loan costs and amortized over the life of the financing obligation(see “Note 6—Our Partnership’s Private Placement”).

**Note 9—Net Income (Loss)per Common Share**

Reconciliationsof the numerator and denominator used to calculate basic net income (loss) per commonshare to the numerator and denominator used to calculate diluted net income (loss)per common share for the periods indicated are as follows:

| ** **                                                                      | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                      | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income (loss)                                                               |       | $                                                    | (6,197,688 | )                                                   | $          | 105,656 |   | $ | (8,031,333 | ) | $ | 780,954 |   |
| Minority interest  share in net (loss)                                          |       | (25,081                                              | )          | —                                              |       | (21,783 | ) | — |   |
| Adjusted net  income (loss)                                                     |       | $                                                    | (6,222,769 | )                                                   | $          | 105,656 |   | $ | (8,053,116 | ) | $ | 780,954 |   |
| Weighted average  common shares outstanding—Basic                          |       | 104,223,534                                          |       | 44,669,644                                          |       | 89,147,083 |   | 30,315,854 |   |
| Incremental  weighted average effect of conversion of limited partnership units |       | 444,352                                              |       | 20,000                                              |       | 293,575 |   | 20,000 |   |
| Weighted average  common shares outstanding—Diluted                        |       | 104,667,886                                          |       | 44,689,644                                          |       | 89,440,658 |   | 30,335,854 |   |
| Net income (loss)  attributable per common share—Basic                     |       | $                                                    | (0.06      | )                                                   | $          | 0.00 |   | $ | (0.09 | ) | $ | 0.03 |   |
| Net income (loss)  attributable per common share—Diluted                   |       | $                                                    | (0.06      | )                                                   | $          | 0.00 |   | $ | (0.09 | ) | $ | 0.03 |   |

 

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**ITEM 2.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**Forward-Looking Information**

This report includes certain statements that may bedeemed to be “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933, as amended, or the Act, and Section 21E ofthe Securities Exchange Act of 1934, as amended, or the Exchange Act. Suchforward-looking statements relate to, without limitation, our future capitalexpenditures, distributions and acquisitions (including the amount and naturethereof), other development trends of the real estate industry, businessstrategies, and the expansion and growth of our operations. These statementsare based on certain assumptions and analyses made by us in light of ourexperience and our perception of historical trends, current conditions,expected future developments and other factors we believe are appropriate. Weintend such forward-looking statements to be covered by the safe harborprovisions for forward-looking statements contained in Section 27A of theAct and Section 21E of the Exchange Act. Such statements are subject to anumber of assumptions, risks and uncertainties which may cause our actualresults, performance or achievements to be materially different from futureresults, performance or achievements expressed or implied by theseforward-looking statements. Forward-looking statements are generallyidentifiable by the use of the words “may,” “will,” “should,” “expect,” “anticipate,”“estimate,” “believe,” “intend,” “project,” “continue,” or the negative ofthese words, or other similar words or terms. Readers are cautioned not toplace undue reliance on these forward-looking statements. Among the factorsabout which we have made assumptions are general economic and business(particularly real estate) conditions being less favorable than expected, thepotential impact of terrorist attacks on the national, regional and localeconomies, the business opportunities that may be presented to and pursued by us,changes in laws or regulations (including changes to laws governing thetaxation of REITs), risk of acquisitions, availability and creditworthiness ofprospective customers, availability of capital (debt and equity), interest ratefluctuations, competition, supply and demand for properties in our current andany proposed market areas, customers’ ability to pay rent at current orincreased levels, accounting principles, policies and guidelines applicable toREITs, environmental, regulatory and/or safety requirements, customerbankruptcies and defaults, the availability and cost of comprehensiveinsurance, including coverage for terrorist acts, and other factors, many ofwhich are beyond our control. We undertake no obligation to publicly update orrevise any forward-looking statements, whether as a result of future events,new information or otherwise.

Unless the contextotherwise requires, the terms, “we,” “us,” and “our” refer to Dividend CapitalTrust Inc. and Dividend Capital Operating Partnership LP and their consolidatedsubsidiaries.

**General**

Dividend Capital Trust Inc. was formed as aMaryland corporation in April 2002 in order to invest in commercial realestate properties consisting primarily of high-quality, generic distributionwarehouses and light industrial properties net leased to creditworthy corporatecustomers. In order to provide capital for these investments, we are sellingour common stock through public offerings, raising capital through ourpartnership’s private placement and issuing debt. We intend to continue raisingcapital through our fourth offering more fully described below, through ourpartnership’s private placement and through the issuance of debt.

Our primary focus is tobuild a diversified portfolio of properties in terms of geography and theindustry group of our customers that will satisfy our corporate objectives ofmaximizing cash available for distributions to investors, preserving ourcapital, and realizing growth in the value of our portfolio over time.

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**Liquidity and Capital Resources**

***Overview***

Other than national economic conditions affecting realestate in general, our management is not currently aware of any material trendsor uncertainties, favorable or unfavorable that may have a material impact oneither capital resources or the revenues or income to be derived from theoperation of real estate properties.

Managementcurrently expects that our principal sources of working capital and funding foracquisitions and potential capital requirements for expansion and renovation ofproperties will include:

·       Proceedsfrom our current offering of common stock;

·       Proceedsfrom our partnership’s private placement;

·       Proceedsfrom our distribution reinvestment plan;

·       Borrowingsunder our senior secured credit facility;

·       Otherforms of secured or unsecured financings;

·       Capitalfrom co-investment partners; and

·       Cashflow from operations.

Over the short term, we believe that our sources ofcapital, specifically our cash flow from operations, borrowings under ourcredit facility and our ability to raise capital through public offerings andour partnership’s private placement are adequate and will continue to beadequate to meet our liquidity requirements and capital commitments. Theseliquidity requirements and capital commitments include the payment ofdistributions, capital expenditures at our properties, forward purchasecommitments (as more fully described below) and the acquisition of 13 buildingswhich are currently under contract or have closed since September 30,2005. These buildings total approximately 2.4 million square feet and havean aggregate purchase price of approximately $133.4 million. We anticipatethat the acquisitions that have not yet closed will close over the nextseveral months. However, the contracts related to such acquisitions aresubject to a number of contingencies and there are no assurances that theseacquisitions will transpire.

Over the longer term, in addition to the same sourcesof capital we rely on to meet our short term liquidity requirements, we alsoexpect to utilize additional secured and unsecured financings and capital fromco-investment partners. We expect these resources will be adequate to fund ouroperating activities and distributions, which we presently anticipate will growover time, and will be sufficient to fund our ongoing acquisition activities aswell as providing capital for investment in future development and other jointventures along with additional potential forward purchase commitments. Ourmanagement anticipates that over time, cash provided by operating activities,debt proceeds and cash from co-investment partners will become a larger portionof our capital resources.

During the ninemonths ended September 30, 2005, and 2004, cash generated from financingactivities was approximately $514.6 million and $ 365.0 million,respectively. This increase was generally comprised of an increase in grossproceeds generated by our public offerings and our partnership’s privateplacement of approximately $127.5 million compared to the same period in2004. Additionally, cash provided by operating activities increased toapproximately $49.0 million for the nine months ended September 30,2005, from approximately $11.6 million for the same period ended September 30,2004 due to the additional properties owned during the 2005 period. Thesesources of capital were primarily utilized to fund approximately$547.5 million and $349.8 million of cash used in investingactivities during the nine months ended September 30, 2005 and 2004, respectively.

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***Public Offerings***

On June 28, 2004, we filed our third registrationstatement with the SEC covering our third public offering of our common stock.This registration statement was declared effective by the SEC, and the offeringcommenced, on October 18, 2004. The common stock was offered at a price of$10.50 per share for a maximum of 40,000,000 shares. The registration statementalso covered up to 13,000,000 shares available pursuant to our distributionreinvestment plan. On June 24, 2005, we concluded our third publicoffering having sold approximately 40.3 million shares of our common stock forgross proceeds of approximately $421.2 million.

Our fourth offering beganimmediately following the third offering. The fourth registration statement wasfiled on January 24, 2005 and was declared effective by the SEC on June 9,2005, and we commenced the offering on June 27, 2005. The registrationstatement covers a maximum of $1,000,000,000 in shares of common stock to besold, including proceeds from our distribution reinvestment plan. Up to72,770,273 shares are being offered to the public at a current price of $10.50per share and up to 23,650,339 shares are being offered to participants in ourdistribution reinvestment plan. We will continue to sell shares under thisoffering, providing capital primarily for investment in real estate. As of September 30,2005, we had sold 16,047,082 shares pursuant to our fourth public offering fortotal gross proceeds of approximately $167.5 million.

***Our Partnership’s Private Placement***

Our partnership is currently offering undividedtenancy-in-common interests in our properties to accredited investors in aprivate placement exempt from registration under the Securities Act. Weanticipate that these tenancy-in-common interests may serve as replacementproperties for investors seeking to complete like-kind exchange transactionsunder Section 1031 of the Internal Revenue Code. Additionally, thetenancy-in-common interests sold to investors will be 100% leased by ourpartnership, and such leases will contain purchase options whereby ourpartnership will have the right to acquire the tenancy-in-common interests fromthe investors at a later point in time in exchange for limited partnershipunits in our partnership under Section 721 of the Internal Revenue Code.During the three and nine months ended September 30, 2005, we raisedapproximately $55.2 million and $91.5 million, respectively, from the saleof undivided tenancy-in-common interests in our properties, and, as of September 30,2005, we have raised a total of approximately $124.2 million from the saleof undivided tenancy-in-common interests in our properties pursuant to ourpartnership’s private placement.

On April 8, 2005,pursuant to its master lease agreement, our partnership exercised its option tobuy certain tenancy-in-common interests it had previously sold in a propertylocated in Memphis, Tennessee by issuing approximately 424,000 limitedpartnership units worth approximately $4.5 million. Such unit holders will havesubstantially the same economic interest as our common shareholders.

***Forward CapitalCommitment Agreements***

On March 28, 2005, awholly-owned subsidiary of our partnership entered into a joint ventureagreement with Deltapoint Park Associates, LLC, an unaffiliated third party, toacquire 47 acres of land and to develop an 885,000 square foot distributionfacility located in Memphis, Tennessee. Deltapoint Park Partners LLC (“Deltapoint”),a Delaware limited liability company, was created for the purpose of conductingbusiness on behalf of the joint venture. Pursuant to the operating agreement ofDeltapoint, we were obligated to make the majority of the initial capitalcontributions and we received a preferred return on such capital contributions.Subsequent to the closing of a construction loan in May 2005, Deltapoint repaidus our initial capital contributions plus our preferred return. In May 2005,our partnership entered into a forward purchase commitment agreement whereby weare obligated to acquire the distribution facility from the joint venture uponcompletion which can be satisfied under a variety of scenarios, mostlydependent upon leasing, with a minimum purchase price equal to actual developmentcosts. We currently 

23

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estimatethat the facility will be completed in January 2006 with a purchase price equalto, at the minimum, the total estimated cost of completion. The purchase pricemay vary depending on certain variables including occupancy on the date ofacquisition.

In October 2004, weentered into a forward capital commitment with Wachovia Bank NationalAssociation (“Wachovia”) in connection with our commitment to acquire twobuildings, referred to as the Buford Distribution Center, totaling 677,667square feet from an unrelated third party developer. We have entered into abinding agreement with Wachovia, the construction lender, to purchase thebuildings at a price of up to $29.0 million and thereby retire the relatedconstruction financing. Our obligation to acquire the buildings from the thirdparty developer upon completion can be satisfied under a variety of scenarios,mostly dependent upon leasing, with a minimum purchase price equal to actualdevelopment costs. In order to provide security to Wachovia under this capitalcommitment, we were required to place $4.9 million in escrow in lieu of aletter of credit. We anticipate funding this commitment in 2006 with netproceeds from our public offerings and debt.

***Distributions***

The payment ofdistributions is determined by our Board of Directors and may be adjusted atits discretion at any time. In December 2004, our Board of Directors setthe 2005 distribution level at an annualized $0.64 per share. The distributionwas set by our Board of Directors at a level we believe to be appropriate andsustainable based upon the evaluation of existing assets within our portfolio,anticipated acquisitions and projected levels of additional capital to beraised, debt to be incurred in the future and the anticipated results ofoperations. For the three and nine months ended September 30, 2005, ourboard of directors declared distributions totaling approximately **$**16.9 millionand $42.7 million, respectively.During the nine months ended September 30, 2005, we paid the followingdistributions:  (i) $9.7 million on January 17,2005, for distributions declared in the fourth quarter of 2004 (ii) $11.7million on April 15, 2005, for distributions declared in the first quarterof 2005 and (iii) $14.1 million on July 15, 2005, for distributionsdeclared in the second quarter of 2005. To fund total distributions, weutilized both funds from operations and debt proceeds. It is our objective tofund our distributions over time exclusively using funds from our operations.

***DistributionReinvestment Plan***

Pursuant to ourdistribution reinvestment plan, $9.4 million and $23.4 million of the distributionsdeclared during the three and nine months ended September 30, 2005,respectively, was satisfied through the issuance of approximately 944,000 and2.3 million shares of our common stock, respectively, at a 5.0% discount fromour then current public offering share price for a discounted purchase price of$9.975 per share. For the three and nine months ended September 30, 2004,$3.8 million and $7.7 million, respectively, of distributions declared weresatisfied through the issuance of approximately 401,000 and 813,000 shares ofour common stock, respectively, pursuant to our distribution reinvestment planat a 5.0% discount from our then current public offering share price for adiscounted purchase price of $9.50 per share.

***Debt ServiceRequirements***

As of September 30, 2005, we had totaloutstanding debt, excluding premiums and financing obligations (see “Note 6—OurPartnership’s Private Placement” to the condensed consolidated financialstatements), of approximately $626.8 million consisting primarily of secured,fixed-rate, non-recourse mortgage notes. All of these notes require monthlypayments of interest and many require, or will ultimately require, monthlyrepayments of principal (see “Note 3—Debt” to the condensed consolidatedfinancial statements). Currently, cash flow from operations is sufficient tosatisfy these monthly debt service requirements and we anticipate that it willcontinue to be sufficient to satisfy these requirements over time.

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As of September 30,2005, the gross book value of all of our properties was approximately$1.8 billion and the gross book value of all properties securing our fixedrate mortgage debt and secured credit facility was approximately $1.2 billionand $186.2 million, respectively. Our debt has various covenants andmanagement believes we were in compliance with all of these covenants atSeptember 30, 2005.

**Results of Operations**

***Summary***

As of September 30,2005, we owned 248 properties located in 23 markets throughout the UnitedStates, 207 of which were acquired after September 30, 2004. As a resultof the acquisition of 207 properties made subsequent to September 30,2004, the revenues and expenses from our operations for the three and ninemonths ended September 30, 2005 reflect a significant increase compared tothe revenues and expenses from our operations for the three and ninemonths ended September 30, 2004. The following table illustrates our collectiveacquisition activity as of September 30, 2005 and September 30, 2004,respectively.

| ** **    | ** ** | **As of September 30,** | ** ** |
|---------------|------------|----------------------------------------|------------|
| ** **    | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| **Market**    | ** ** | ** **                             | ** ** | **Number of  Buildings** | ** ** | **Initial  Acquisition  Cost(1)** | ** ** | **Gross  Leasable  Area** | ** ** | **Occupancy(2)** | ** ** | **Number of  Buildings** | ** ** | **Initial  Acquisition  Cost(1)** | ** ** | **Gross  Leasable  Area** | ** ** | **Occupancy(2)** | ** ** |
| Atlanta       |       |                                   | 48         |   |   | $ | 263,517,952 |   | 5,981,602 |   |   | 88.2 | % |   |   | 5 |   |   | $ | 68,100,025 |   | 2,176,034 |   |   | 78.1 | % |   |
| Baltimore     |       |                                   | 9          |   |   | 66,754,076 |   | 1,167,144 |   |   | 87.7 | % |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Boston        |       |                                   | 6          |   |   | 41,644,823 |   | 570,641 |   |   | 67.4 | % |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Charlotte     |       |                                   | 3          |   |   | 18,010,555 |   | 345,956 |   |   | 100.0 | % |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Chicago       |       |                                   | 13         |   |   | 145,225,939 |   | 2,814,275 |   |   | 96.4 | % |   |   | 1 |   |   | 11,369,570 |   | 222,122 |   |   | 100.0 | % |   |
| Cincinnati    |       |                                   | 18         |   |   | 131,454,546 |   | 3,294,142 |   |   | 84.0 | % |   |   | 7 |   |   | 78,907,919 |   | 1,797,369 |   |   | 94.9 | % |   |
| Columbus      |       |                                   | 3          |   |   | 48,065,582 |   | 1,213,486 |   |   | 85.2 | % |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Dallas        |       |                                   | 48         |   |   | 222,133,310 |   | 4,701,266 |   |   | 91.2 | % |   |   | 3 |   |   | 40,814,101 |   | 982,776 |   |   | 86.8 | % |   |
| Denver        |       |                                   | 1          |   |   | 8,949,122 |   | 160,232 |   |   | 100.0 | % |   |   | 1 |   |   | 8,949,122 |   | 160,232 |   |   | 82.8 | % |   |
| Harrisburg    |       |                                   | 2          |   |   | 30,481,367 |   | 650,000 |   |   | 100.0 | % |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Houston       |       |                                   | 33         |   |   | 129,620,154 |   | 2,349,671 |   |   | 86.6 | % |   |   | 12 |   |   | 51,689,595 |   | 815,829 |   |   | 96.8 | % |   |
| Indianapolis  |       |                                   | 1          |   |   | 15,663,010 |   | 442,127 |   |   | 100.0 | % |   |   | 1 |   |   | 15,663,010 |   | 442,127 |   |   | 68.3 | % |   |
| Los Angeles   |       |                                   | 11         |   |   | 84,089,795 |   | 1,169,498 |   |   | 80.0 | % |   |   | 1 |   |   | 9,838,394 |   | 201,493 |   |   | 100.0 | % |   |
| Louisville    |       |                                   | 2          |   |   | 18,350,820 |   | 521,000 |   |   | 100.0 | % |   |   | 2 |   |   | 18,350,820 |   | 521,000 |   |   | 100.0 | % |   |
| Memphis       |       |                                   | 11         |   |   | 183,391,048 |   | 5,042,018 |   |   | 95.4 | % |   |   | 3 |   |   | 39,836,875 |   | 1,101,006 |   |   | 97.9 | % |   |
| Miami         |       |                                   | 3          |   |   | 25,648,721 |   | 316,452 |   |   | 93.9 | % |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Nashville     |       |                                   | 3          |   |   | 59,340,369 |   | 1,699,530 |   |   | 100.0 | % |   |   | 3 |   |   | 59,340,369 |   | 1,699,530 |   |   | 100.0 | % |   |
| New Jersey    |       |                                   | 3          |   |   | 36,935,837 |   | 483,338 |   |   | 100.0 | % |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Orlando       |       |                                   | 2          |   |   | 15,681,760 |   | 367,137 |   |   | 100.0 | % |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Phoenix       |       |                                   | 13         |   |   | 79,349,999 |   | 1,474,963 |   |   | 95.3 | % |   |   | — |   |   | — |   | — |   |   | — |   |   |
| San Antonio   |       |                                   | 2          |   |   | 7,724,491 |   | 172,050 |   |   | 100.0 | % |   |   | 2 |   |   | 7,724,491 |   | 172,050 |   |   | 100.0 | % |   |
| San Francisco |       |                                   | 5          |   |   | 35,371,221 |   | 474,636 |   |   | 100.0 | % |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Seattle       |       |                                   | 8          |   |   | 87,201,834 |   | 1,198,617 |   |   | 100.0 | % |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Total         |       |                                   | 248        |   |   | $ | 1,754,606,330 |   | 36,609,781 |   |   | 91.5 | % |   |   | 41 |   |   | $ | 410,584,291 |   | 10,291,568 |   |   | 91.1 | % |   |
|               |            |                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)             These amounts represent the total cost of ourproperties in accordance with GAAP as of the date of acquisition and theseamounts do not reflect additions or deletions that succeed the date ofacquisition.

(2)             The total vacant square footage as of September 30,2005, and 2004, was 3,129,588 and 913,065, respectively. Of the vacant space asof September 30, 2005 and 2004, we had 457,041 and 745,750 square feet,respectively, under master lease agreements with various sellers whereby thesellers are obligated to pay monthly rent until the earlier of the expirationof the master lease agreement or commencement of rent from a new customer. Thetotal percentage of square feet leased, including space covered by masterleases was 92.7% and 98.4% as of September 30, 2005, and 2004,respectively. For financial reporting purposes under GAAP, rental and expenserecovery payments under master lease agreements are reflected as a reduction ofthe basis of the underlying property rather than rental revenues.

 

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In addition to thesignificant increase in property operating income from the three and ninemonths ended September 30, 2005 compared to the three and nine monthsended September 30, 2004 resulting from the aforementioned acquisitions,the following describes other significant differences between the periods  that are a result of our continued growth:

·       Wehave significantly increased the proportion of our assets that are financed bydebt by issuing or assuming an additional $547.4 million of debt since September 30,2004. This has resulted in significantly higher interest expense in the threeand nine months ended September 30, 2005 compared to the three and ninemonths ended September 30, 2004.

·       Assetmanagement fees paid to our advisor of 0.75% per annum of the undepreciatedcost of our properties were significantly higher in the three and nine monthsended September 30, 2005 compared to the three and nine months ended September 30,2004 as a result of more properties being subject to these fees during the 2005periods.

·       Thedepreciation and amortization expense of our real estate assets continues togrow in conjunction with the increase of the size of our real estate portfolio.

During the three and ninemonths ended September 30, 2005, we recognized a net loss of approximately$6.2 million and $8.0 million, respectively, compared to net income ofapproximately $106,000 and $781,000, respectively, for the same periods in 2004.The primary reason for the change is due to the increase in depreciationexpense caused by proportionately more value being attributed to lease relatedassets upon acquisition pursuant to SFAS No. 141, and an increase ininterest expense due to higher debt balances and higher financing obligationbalances. The components of the increase in operating activities are reflectedin the changes in rental revenues, property operating expenses, other incomeand other expenses as more fully described below.

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***Three months ended September 30, 2005 compared tothe three months ended September 30, 2004***

Thefollowing table illustrates the changes in property revenues, propertyoperating expenses, property net operating income, other income and otherexpenses for the three months ended September 30, 2005 compared to thethree months ended September 30, 2004. A discussion of these changesfollows the table.

| ** **                                   | ** ** | **Three Months Ended  September 30,** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------|------------|------------|------------|
| ** **                                   | ** ** | **2005**                                             | ** ** | **2004**   | ** ** | **$ Change** | ** ** |
| **Property Revenue**                         |       |                                                 |       |       |       |   |   |
| Same store                                   |       | $                                                    | 9,253,584  |       | $          | 8,498,507 |   | $ | 755,077 |   |
| 2005 acquisitions                            |       | 17,318,196                                           |       | —     |       | 17,318,196 |   |
| 2004 acquisitions                            |       | 9,172,075                                            |       | 36,449     |       | 9,135,626 |   |
| Total property revenue                       |       | $                                                    | 35,743,855 |       | $          | 8,534,956 |   | $ | 27,208,899 |   |
| **Property Operating Expenses**              |       |                                                 |       |       |       |   |   |
| Same store                                   |       | 1,865,652                                            |       | 1,799,910  |       | 65,742 |   |
| 2005 acquisitions                            |       | 3,953,214                                            |       | —     |       | 3,953,214 |   |
| 2004 acquisitions                            |       | 2,718,237                                            |       | —     |       | 2,718,237 |   |
| Total property expenses                      |       | $                                                    | 8,537,103  |       | $          | 1,799,910 |   | $ | 6,739,193 |   |
| **Property Net Operating Income**            |       |                                                 |       |       |       |   |   |
| Same store                                   |       | $                                                    | 7,387,932  |       | $          | 6,698,597 |   | $ | 689,335 |   |
| 2005 acquisitions                            |       | 13,364,982                                           |       | —     |       | 13,364,982 |   |
| 2004 acquisitions                            |       | 6,453,838                                            |       | 36,449     |       | 6,417,389 |   |
| Total property net operating income          |       | $                                                    | 27,206,752 |       | $          | 6,735,046 |   | $ | 20,471,706 |   |
| **Other Income**                             |       |                                                 |       |       |       |   |   |
| Loss on the early  termination of lease, net |       | $                                                    | (440,704   | )          | $          | — |   | $ | (440,704 | ) |
| Straight-line  rents                         |       | 1,432,205                                            |       | 628,179    |       | 804,026 |   |
| Above and below  market rents, net           |       | (643,043                                             | )          | (228,203   | )          | (414,840 | ) |
| Interest and  other income                   |       | 752,330                                              |       | 387,142    |       | 365,188 |   |
| Gain on hedges                               |       | —                                               |       | 545,550    |       | (545,550 | ) |
| Total other income                           |       | $                                                    | 1,100,788  |       | $          | 1,332,668 |   | $ | (231,880 | ) |
| **Other Expenses**                           |       |                                                 |       |       |       |   |   |
| Depreciation and  amortization               |       | $                                                    | 21,177,684 |       | $          | 4,887,968 |   | $ | 16,289,716 |   |
| Interest                                     |       | 9,812,560                                            |       | 1,650,149  |       | 8,162,411 |   |
| General and  administrative                  |       | 865,441                                              |       | 1,025,865  |       | 160,424 |   |
| Asset management  fees, related party        |       | 2,936,684                                            |       | 398,076    |       | 2,538,608 |   |
| Total other expenses                         |       | $                                                    | 34,792,369 |       | $          | 7,962,058 |   | $ | 26,830,311 |   |
| Minority Interest                            |       | 287,141                                              |       | —     |       | 287,141 |   |
| Net income (loss)                            |       | $                                                    | (6,197,688 | )          | $          | 105,656 |   | $ | (6,303,344 | ) |

 

*Property Revenue*

Property revenue increased by approximately $27.2million for the three months ended September 30, 2005 compared to the sameperiod in 2004, primarily as a result of the rental revenue generated from the207 properties acquired subsequent to September 30, 2004.

Same store propertyrevenues increased by approximately $755,000 for the three months ended September 30,2005 compared to the same period in 2004, due to rental rate increases as wellas an increase in occupancy that occurred subsequent to September 30,2004.

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*Property OperatingExpenses*

Property operating expenses increased by approximately$6.7 million for the three months ended September 30, 2005 compared to thesame period in 2004, primarily as a result of the acquisition of 207 propertiessubsequent to September 30, 2004.

Same store operatingexpenses increased by approximately $66,000 for the three months ended September 30,2005 compared to the same period in 2004, primarily due to increased propertymanagement fees and utilities expenses.

*Other Income*

Other income was lower byapproximately $232,000 for the three months ended September 30, 2005 ascompared to the same period in 2004 in part as a result of a loss ofapproximately $441,000 due to early lease terminations during the three monthsended September 30, 2005. The increase in straight-line rents over thesame periods is mainly attributable to the revenue generated by newly acquiredleases resulting from the aforementioned property acquisitions. The decrease inabove and below market rents is due to the aforementioned properties that wereacquired generally having leases with rental rates proportionately higher thanmarket rental rates measured at the time of acquisition. The increase ininterest income is due to higher cash balances held in interest bearing bankaccounts during the three months ended September 30, 2005, as compared tothe three months ended September 30, 2004. In addition, we had $9.7 millionin notes receivable outstanding as of September 30, 2005, $5.5 million ofwhich was issued subsequent to September 30, 2004 (see “Note 2—Real Estate”).The decrease in gain on hedges is due to the settlement of hedges and resultinggain due to ineffectiveness recorded during the three months ended September30, 2004. 

*Other Expenses*

Other expenses increased $26.8 million for the threemonths ended September 30, 2005 compared to the same period in 2004 primarilybecause depreciation and amortization expense was higher by approximately $16.3million for the three months ended September 30, 2005 as compared to thesame period in 2004. This was primarily due to the acquisition of 207properties subsequent to September 30, 2004 with a gross book value of$1.4 billion. The increase in interest expense is attributable to highermortgage note balances and higher financing obligation balances that wereoutstanding during the three months ended September 30, 2005, compared tothe three months ended September 30, 2004. General and administrativeexpenses were lower for the three months ended September 30, 2005 comparedto the three months ended September 30, 2004, primarily as a result of adecrease in compliance costs associated with Sarbanes-Oxley offset by anincrease in general and administrative costs due to an increase in generalbusiness activity. The increase in asset management fees payable to our advisorwas attributable to the aforementioned acquisition of 207 additional propertiesall of which were subject to the 0.75% annual asset management fee payable toour advisor (see “Note 8—Related Party Transactions” to the condensedconsolidated financial statements).

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***Nine months ended September 30, 2005 compared tothe nine months ended September 30, 2004***

Thefollowing table illustrates the changes in property revenues, propertyoperating expenses, property net operating income, other income and otherexpenses for the nine months ended September 30, 2005 compared to the ninemonths ended September 30, 2004. A discussion of these changes follows thetable.

| ** **                                   | ** ** | **Nine Months Ended  September 30,** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                                   | ** ** | **2005**                                            | ** ** | **2004**   | ** ** | **$ Change** | ** ** |
| **Property Revenue**                         |       |                                                |       |       |       |   |   |
| Same store                                   |       | $                                                   | 11,025,027 |       | $          | 10,508,354 |   | $ | 516,673 |   |
| 2005 acquisitions                            |       | 23,034,951                                          |       | —     |       | 23,034,951 |   |
| 2004 acquisitions                            |       | 44,092,821                                          |       | 6,878,410  |       | 37,214,411 |   |
| Total property revenue                       |       | $                                                   | 78,152,799 |       | $          | 17,386,764 |   | $ | 60,766,035 |   |
| **Property Operating Expenses**              |       |                                                |       |       |       |   |   |
| Same store                                   |       | $                                                   | 2,459,934  |       | $          | 2,326,483 |   | $ | 133,451 |   |
| 2005 acquisitions                            |       | 4,801,247                                           |       | —     |       | 4,801,247 |   |
| 2004 acquisitions                            |       | 11,453,086                                          |       | 1,387,281  |       | 10,065,805 |   |
| Total property expenses                      |       | $                                                   | 18,714,267 |       | $          | 3,713,764 |   | $ | 15,000,503 |   |
| **Property Net Operating Income**            |       |                                                |       |       |       |   |   |
| Same store                                   |       | $                                                   | 8,565,093  |       | $          | 8,181,871 |   | $ | 383,222 |   |
| 2005 acquisitions                            |       | 18,233,704                                          |       | —     |       | 18,233,704 |   |
| 2004 acquisitions                            |       | 32,639,735                                          |       | 5,491,129  |       | 27,148,606 |   |
| Total property net operating income          |       | $                                                   | 59,438,532 |       | $          | 13,673,000 |   | $ | 45,765,532 |   |
| **Other Income**                             |       |                                                |       |       |       |   |   |
| Gain on the early  termination of lease, net |       | $                                                   | 2,376,618  |       | $          | — |   | $ | 2,376,618 |   |
| Straight-line  rents                         |       | 2,960,089                                           |       | 1,005,776  |       | 1,954,313 |   |
| Above and below  market rents, net           |       | (1,533,538                                          | )          | (369,403   | )          | (1,164,135 | ) |
| Interest and  other income                   |       | 2,526,698                                           |       | 627,928    |       | 1,898,770 |   |
| Gain (loss) on  hedges                       |       | (71,850                                             | )          | 545,550    |       | (617,400 | ) |
| Total other income                           |       | $                                                   | 6,258,017  |       | $          | 1,809,851 |   | $ | 4,448,166 |   |
| **Other Expenses**                           |       |                                                |       |       |       |   |   |
| Depreciation and  amortization               |       | $                                                   | 47,720,042 |       | $          | 9,298,803 |   | $ | 38,421,239 |   |
| Interest                                     |       | 18,357,649                                          |       | 3,194,753  |       | 15,162,896 |   |
| General and  administrative                  |       | 2,294,216                                           |       | 1,664,971  |       | 629,245 |   |
| Asset management  fees, related party        |       | 5,639,815                                           |       | 543,370    |       | 5,096,445 |   |
| Total other expenses                         |       | $                                                   | 74,011,722 |       | $          | 14,701,897 |   | $ | 59,309,825 |   |
| Minority Interest                            |       | 283,840                                             |       | —     |       | 283,840 |   |
| Net income (loss)                            |       | $                                                   | (8,031,333 | )          | $          | 780,954 |   | $ | (8,812,287 | ) |

 

*Property Revenue*

Property revenue increased by approximately $60.8million for the nine months ended September 30, 2005 compared to the sameperiod in 2004, primarily as a result of (i) the rental revenue generatedfrom the 207 properties acquired subsequent to September 30, 2004, and (ii) therental revenues generated by 25 properties acquired during the nine monthsended September 30, 2004 representing a full nine months of operations inthe first three quarters of 2005 as compared to less than nine monthsoperations in the first three quarters of 2004.

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Same store propertyrevenues increased by approximately $517,000 for the nine months ended September 30,2005 compared to the same period in 2004, due to rental rate increases as wellas an increase in occupancy that occurred subsequent to September 30,2004.

*Property OperatingExpenses*

Property operating expenses increased by approximately$15.0 million for the nine months ended September 30, 2005 compared to thesame period in 2004, primarily as a result of (i) the acquisition of 207properties subsequent to September 30, 2004, and (ii) the operatingexpenses generated by 25 properties acquired during the nine months ended September 30,2004 representing a full nine months of operations in the first three quartersof 2005 as compared to less than nine months operations in the first threequarters of 2004.

Same store operatingexpenses increased by approximately $133,000 for the nine months ended September 30,2005 compared to the same period in 2004, primarily due to increased realestate taxes and utilities expenses.

*Other Income*

Other income was higher byapproximately $4.4 million for the nine months ended September 30, 2005 ascompared to the same period in 2004, generally, as a result of theaforementioned properties that were acquired and as a result of a net gainrecognized in the amount of $2.4 million on the early termination of leases in 2005.The increase in straight-line rents over the same periods is mainlyattributable to the revenue generated by newly acquired leases resulting fromthe aforementioned property acquisitions. The decrease in above and belowmarket rents is due to the aforementioned properties generally having leaseswith rental rates proportionately higher than market rental rates measured atthe time of acquisition. The increase in interest income is due to higher cashbalances held in interest bearing bank accounts during the nine months ended September 30,2005, as compared to the nine months ended September 30, 2004. Inaddition, we had $9.7 million in notes receivable outstanding as of September 30,2005, $5.5 million of which was issued subsequent to September 30, 2004 (see“Note 2—Real Estate”). The decrease in gain on hedges is primarily a result of thesettlement of hedges and resulting gain of approximately $546,000 due toineffectiveness recorded in the nine months ended September 30, 2004.

*Other Expenses*

Other expenses increased$59.3 million for the nine months ended September 30, 2005 compared to the sameperiod in 2004 primarily because depreciation and amortization expense washigher by approximately $38.4 million for the nine months ended September 30,2005, as compared to the same period in 2004. This was primarily due to theacquisition of 207 additional properties subsequent to September 30, 2004with a gross book value of $1.4 billion. The increase in interest expense isattributable to higher mortgage note balances and higher financing obligationbalances that were outstanding during the nine months ended September 30,2005, compared to the nine months ended September 30, 2004. General andadministrative expenses were higher during the nine months ended September 30,2005, than in the nine months ended September 30, 2004, as a result of anincrease in general business activities offset by a decrease in compliancecosts associated with Sarbanes-Oxley. The increase in asset management feespayable to our advisor was attributable to the aforementioned acquisition of207 additional properties, all of which were subject to the 0.75% assetmanagement fee payable to our advisor (see “Note 8—Related Party Transactions”to the condensed consolidated financial statements).

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**Off-Balance Sheet Arrangements**

As of September 30,2005, December 31, 2004 and September 30, 2004, respectively, we hadno material off-balance sheet arrangements that have or are reasonably likelyto have a current or future effect on our financial condition, changes infinancial condition, revenues or expenses, results of operations, liquidity,capital expenditures or capital resources.

**Supplemental Earnings Measures**

***Funds From Operations***

Webelieve that net income, as defined by GAAP, is the most appropriate earningsmeasure. However, we consider funds from operations, or FFO, as defined by theNational Association of Real Estate Investment Trusts (“NAREIT”), to be auseful supplemental measure of our operating performance. FFO is generally definedas net income, calculated in accordance with GAAP, plus real estate-relateddepreciation and amortization, less gains (or losses) from dispositions of realestate held for investment purposes and adjustments to derive our pro ratashare of FFO of consolidated and unconsolidated joint ventures. We consider FFOto be a useful measure for reviewing our comparative operating and financialperformance because, by excluding all operating real estate depreciation andamortization and gains or losses related to sales of previously depreciatedoperating real estate, FFO can help the investing public compare the operatingperformance of a company’s real estate between periods or to other companies.The following table presents the calculation of our FFO reconciled from net incomefor the three and nine months ended September 30, 2005 and 2004.

| ** **                             | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                             | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net Income (Loss)                      |       | $                                                    | (6,197,688 | )                                                   | $          | 105,656 |   | $ | (8,031,333 | ) | $ | 780,954 |   |
| Depreciation and amortization          |       | 21,177,684                                           |       | 4,887,968                                           |       | 47,720,042 |   | 9,298,803 |   |
| Minority interests share of net loss   |       | (287,141                                             | )          | —                                              |       | (283,840 | ) | — |   |
| FFO attributable to minority interests |       | (517,894                                             | )          | —                                              |       | (583,555 | ) | — |   |
| Funds from operations                  |       | $                                                    | 14,174,961 |                                                | $          | 4,993,624 |   | $ | 38,821,314 |   | $ | 10,079,757 |   |

 

**Critical Accounting Policies**

***General***

In our Form 10-K filed for the year ended December 31,2004, we discuss the critical accounting policies which management believes aremost “critical” to the presentation of our financial condition and results ofoperations which require our management’s most difficult, subjective or complexjudgments. These judgments often result from the need to make estimates aboutthe effect of matters that are inherently uncertain. The discussion addressesjudgments known to management pertaining to trends, events or uncertaintieswhich were taken into consideration upon the application of those policies andthe likelihood that materially different amounts would be reported upon takinginto consideration different conditions and assumptions. As of September 30,2005, no additional critical accounting policies had been identified other thanthose set forth in our Form 10-K filed for the year ended December 31,2004.

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**ITEM 3.**                QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss from adverse changesin market conditions such as prices and interest rates. Our future earnings andcash flows are dependent upon prevailing market rates. Accordingly, we manageour market risk by matching projected cash inflows from operating, investingand financing activities with projected cash outflows for debt service,acquisitions, capital expenditures, distributions to shareholders andunitholders, and other cash requirements. The majority of our outstanding debthas fixed interest rates, which minimizes our risk related to fluctuatinginterest rates.

Our exposure to market risk includes interest ratefluctuations in connection with our credit facilities and other variable rateborrowings and forecasted fixed rate debt issuances, including refinancing ofexisting fixed rate debt. Interest rate risk may result from many factors,including governmental monetary and tax policies, domestic and internationaleconomic and political considerations and other factors that are beyond ourcontrol. To manage interest rate risk for forecasted issuances of fixed ratedebt, we primarily use treasury locks as part of our cash flow hedgingstrategy. A treasury lock is designed to mitigate the risk of future interestrate fluctuations by providing a future fixed interest rate for a limitedpre-determined period of time. During the three and nine months ended September 30,2005 and 2004, such derivatives were used to hedge the variable cash flowsassociated with forecasted issuances of debt. We do not use derivatives fortrading or speculative purposes and only enter into contracts with majorfinancial institutions based on their credit rating and other factors.

As of September 30, 2005, we had three treasurylock hedges which had not been settled and were, therefore, subject tovariability based upon market interest rates. We estimate the fair value of ourtreasury lock agreements by calculating the present value of the differencebetween the corresponding locked treasury rates and the expected yield on thespecific treasury obligations referenced in the treasury lock agreement. Basedupon this calculation, the value associated with these hedges would decreaseapproximately $4.2 million if the market interest rate of the referencedtreasury obligation were to decrease 10% (0.43%, based upon the prevailingmarket rate at September 30, 2005). Similarly, our variable rate debt issubject to risk based upon prevailing market interest rates. If the prevailingmarket interest rates relevant to our variable rate debt were 10% higher duringthe period, our interest expense for the three and nine months ended September 30,2005 and 2004 would have increased by $71,000 and $72,000, and $5,000 and$7,000, respectively.

As of September 30,2005, the estimated fair value of our debt was estimated to be approximately$634.0 million based on our estimate of the then current market interestrates.

**ITEM 4.**                CONTROLSAND PROCEDURES

**Evaluationof Disclosure Controls and Procedures**

Under the supervision andwith the participation of our management, including our principal executiveofficer and principal financial officer, we conducted an evaluation of theeffectiveness of our disclosure controls and procedures, as such term isdefined under Rule 13a-15(e) under the Exchange Act, as of September 30,2005, the end of the period covered by this quarterly report. Our management, including our principal executiveofficer and principal financial officer, does not expect that our disclosurecontrols and procedures or our internal controls will prevent all error and allfraud. A control system, no matter how well conceived and operated, can provideonly reasonable, not absolute, assurance that the objectives of the controlsystem are met. Further, the design of a control system must reflect the factthat there are resource constraints, and the benefits of controls must beconsidered relative to their costs. Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within Dividend Capital havebeen detected. Based on this evaluation, our principal executive officerand our principal financial officer concluded that our disclosure controls andprocedures were effective as of September 30, 2005.

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**Changes in Internal Controls**

There were no changes in our internal controls overfinancial reporting identified in connection with the evaluation of suchinternal controls that occurred during our last fiscal quarter that havematerially affected, or are reasonably likely to materially affect, ourinternal controls over financial reporting.

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**PART II. OTHER INFORMATION**

**ITEM 1.**                LEGALPROCEEDINGS

None.

**ITEM 2.**                UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

**Share Redemption Program**

Aslong as our common stock is not listed on a national securities exchange ortraded on an over-the-counter market, shareholders of Dividend Capital Trustwho have held their shares for at least one year may be able to redeem all orany portion of their shares in accordance with the procedures outlined in theprospectus relating to the shares they purchased. At that time, we may, subjectto certain conditions and limitations, redeem the shares presented forredemption for cash to the extent that we have sufficient funds available to usto fund such redemption. The amount received from the redemption of shares willbe equal to the lesser of the price actually paid for the shares or theredemption price, which is dependent on the number of years the shares areheld. For shares purchased in our third and fourth public offerings, theredemption price is as described in the following table.

| **Share Purchase Anniversary** | ** ** | ** **            | ** ** | **Redemption Price as a  Percentage of  Purchase Price(1)** | ** ** |
|------------------------------------------|------------|-----------------------|------------|--------------------------------------------------------------------------------------|------------|
| Less than 1                              |       | No Redemption Allowed |       |
| 1                                        |       | 92.5                  | %          |
| 2                                        |       | 95.0                  | %          |
| 3                                        |       | 97.5                  | %          |
| 4                                        |       | 100.0                 | %          |

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(1)          This program isadministered and governed by our board of directors and is subject to change atthe board’s discretion and in no event will the redemption price exceed thecurrent offering price of our common shares (excluding the discounted price pershare pursuant to our dividend reinvestment plan).

Weexpect to fund the redemption price of any share redemptions with proceedsreceived from the sale of shares pursuant to the distribution reinvestmentplan. Our board of directors may, at its sole discretion, choose to use othersources of funds to redeem shares. The table below sets forth informationregarding our redemption of common stock from our shareholders for the quarterended September 30, 2005.

| **Period**          | ** ** | ** ** | ** ** | **Total Number  of Shares  Repurchased(1)**                                 | ** ** | **Average Price  per Share** | ** ** |
|---------------------|------------|------------|------------|---------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| July 2005      |       | —     |       | $             — |       |
| August 2005    |       | —     |       | —                                                                                |       |
| September 2005 |       | 213,581    |       | 9.51                                                                                  |       |
| Total               |       | 213,581    |       | $          9.51                     |       |

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(1)          Theseshares were redeemed pursuant to our share redemption program.

**ITEM 3.**                DEFAULTSUPON SENIOR SECURITIES

None.

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**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

**ITEM 5.**                OTHERINFORMATION

None.

**ITEM 6.**                EXHIBITS

**a.****                Exhibits**

| 31.1 |   | Rule 13a-14(a) Certification of  Principal Executive Officer |
|------|--------|------------------------------------------------------------------------|
| 31.2 |   | Rule 13a-14(a) Certification  of Principal Financial Officer |
| 32.1 |   | Section 1350  Certification of Principal Executive Officer        |
| 32.2 |   | Section 1350  Certification of Principal Financial Officer        |

 

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

|                              |     | DIVIDEND CAPITAL TRUST INC. |
|------------------------------|----------|-----------------------------|
| Date: November 9,  2005 | * * | /S/  EVAN H. ZUCKER         |
|                         |     | Evan H. Zucker              |
|                         | * * | *Chief Executive Officer*   |
| Date: November 9,  2005 | * * | /S/  JAMES R. MULVIHILL     |
|                         |     | James R. Mulvihill          |
|                         | * * | *Chief Financial Officer*   |

 

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**EXHIBIT INDEX**

| Exhibit  Number | ** ** | **Exhibit Description**                                           |
|-----------------|------------|------------------------------------------------------------------------|
| 31.1            |       | Rule 13a-14(a) Certification of  Principal Executive Officer |
| 31.2            |       | Rule 13a-14(a) Certification  of Principal Financial Officer |
| 32.1            |       | Section 1350  Certification of Principal Executive Officer        |
| 32.2            |       | Section 1350  Certification of Principal Financial Officer        |

 

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