** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**FORM 10-Q**

** **

**(Mark One)**

 
| **ý**                                        |   | **Quarterly Report Under Section 13  or 15(d) of the Securities Exchange Act of 1934**                                                                                                                                         |
|---------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                              |   |                                                                                                                                                                                                                           |
| **For the quarterly period ended June 30,  2003** |
|                                              |   |                                                                                                                                                                                                                           |
| **or**                                            |
|                                              |   |                                                                                                                                                                                                                           |
| **o**                                             |   | **Transition Report Under Section 13  or 15(d) of the Securities Exchange Act of 1934**                                                                                                                                        |
|                                              |   |                                                                                                                                                                                                                           |
|                                              |   | **For the transition period from                   to                 ** |
|                                              |
|                                                   |        |                                                                                                                                                                                                                                |  |

 

**Commission File No. 333-86234**

 

**DIVIDEND CAPITAL TRUST INC.**

(Exact name of registrant as specified in itscharter)

 

| **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’s telephonenumber, including area code: **(303) 228-2200**

 

Indicate by a check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the Exchange Act duringthe past 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes ý  No o

 

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

 

As of August 8, 2003, 4,020,046 shares of commonstock of Dividend Capital Trust Inc., par value $0.01 per share, wereoutstanding.

 

 

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**Dividend Capital Trust Inc. and Subsidiary**

 

**Index to Form 10-Q**

 
| **PART I.**    | FINANCIAL INFORMATION                                                                                                                                                                   |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           |                                                                                                                                                                                    |
| Item 1.        | Financial Statements:                                                                                                                                                                   |
|           | Condensed Consolidated Balance Sheets as of  June 30, 2003 and December 31, 2002 (Unaudited)                                                                                            |
|           | Condensed Consolidated Statements of  Operations for the Three and Six Months Ended June 30, 2003 and for the  Period From Inception (April 12, 2002) through June 30, 2002 (Unaudited) |
|           | Condensed Consolidated Statements of  Shareholders’ Equity (Deficit) for the Six Months Ended June 30, 2003  (Unaudited)                                                           |
|           | Condensed Consolidated Statements of Cash  Flows  for the Six Months Ended June  30, 2003 and for the Period from Inception (April 12, 2002) to June 30, 2002  (Unaudited)         |
|           | Notes to Condensed Consolidated Financial  Statements (Unaudited)                                                                                                                       |
| Item 2.        | Management’s Discussion and Analysis of Financial Condition and  Results of Operations                                                                                             |
| Item 3.        | Quantitative and Qualitative Disclosure  About Market Risk                                                                                                                              |
| Item 4.        | Controls and Procedures                                                                                                                                                                 |
|           |                                                                                                                                                                                    |
| **PART II.**   | OTHER INFORMATION                                                                                                                                                                       |
|           |                                                                                                                                                                                    |
| Item 1.        | Legal Proceedings                                                                                                                                                                       |
| Item 2.        | Changes in Securities and Use of Proceeds                                                                                                                                               |
| Item 3.        | Defaults upon Senior Securities                                                                                                                                                         |
| Item 4.        | Submission of Matters to a Vote of Security  Holders                                                                                                                                    |
| Item 5.        | Other Information                                                                                                                                                                       |
| Item 6.        | Exhibits and Reports on Form 8-K                                                                                                                                                        |
|           |                                                                                                                                                                                    |
| **SIGNATURES** |

 

2

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**PARTI. FINANCIAL INFORMATION**

 

**ITEM1. FINANCIAL STATEMENTS**

** **

**Dividend Capital Trust Inc. and Subsidiary**

** **

**Condensed Consolidated Balance Sheets**

** **
|                                                                                                                                                                     |   | **As of  June 30,  2003** |       | **As of  December 31,  2002** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|------------|-------------------------------|--------|
|                                                                                                                                                                     |   | **(Unaudited)**           |       |                          |   |
| **ASSETS**                                                                                                                                                               |   |                      |       |                          |   |
| Real estate                                                                                                                                                              |   | $                         | 21,630,000 |                          | $      | — |   |
| Intangible lease and acquisition costs                                                                                                                                   |   | 2,853,672                 |       | —                        |   |
| Less accumulated depreciation and amortization                                                                                                                           |   | (68,604                   | )          | —                        |   |
| **Net Investment in Real Estate**                                                                                                                                        |   | 24,415,068                |       | —                        |   |
|                                                                                                                                                                     |   |                      |       |                          |   |
| Cash and cash equivalents                                                                                                                                                |   | 11,959,862                |       | 11,055                        |   |
| Restricted cash                                                                                                                                                          |   | —                    |       | 681,890                       |   |
| Other assets, net                                                                                                                                                        |   | 765,458                   |       | 58,733                        |   |
| **Total Assets**                                                                                                                                                         |   | $                         | 37,140,388 |                          | $      | 751,678 |   |
|                                                                                                                                                                     |   |                      |       |                          |   |
| **LIABILITIES & SHAREHOLDERS’  EQUITY**                                                                                                                         |   |                      |       |                          |   |
| Liabilities:                                                                                                                                                             |   |                      |       |                          |   |
| Mortgage payable                                                                                                                                                         |   | $                         | 11,350,000 |                          | $      | — |   |
| Accounts payable and accrued expenses                                                                                                                                    |   | 275,264                   |       | 79,500                        |   |
| Dividend payable                                                                                                                                                         |   | 283,637                   |       | —                        |   |
| Subscriptions for common shares                                                                                                                                          |   | —                    |       | 681,890                       |   |
| Other liabilities                                                                                                                                                        |   | 247,818                   |       | —                        |   |
| **Total Liabilities**                                                                                                                                                    |   | 12,156,719                |       | 761,390                       |   |
|                                                                                                                                                                     |   |                      |       |                          |   |
| Minority Interest                                                                                                                                                        |   | 1,000                     |       | 1,000                         |   |
|                                                                                                                                                                     |   |                      |       |                          |   |
| Shareholders’ Equity (Deficit):                                                                                                                                     |   |                      |       |                          |   |
| 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, 2,893,847 and 200 shares issued and outstanding as of June 30,  2003 and December 31, 2002, respectively |   | 28,938                    |       | 2                             |   |
| Additional paid-in capital                                                                                                                                               |   | 25,293,152                |       | 1,998                         |   |
| Distributions in excess of earnings                                                                                                                                      |   | (339,421                  | )          | (12,712                       | )      |
| **Total Shareholders’ Equity  (Deficit)**                                                                                                                           |   | 24,982,669                |       | (10,712                       | )      |
| **Total Liabilities and  Shareholders’ Equity (Deficit)**                                                                                                           |   | $                         | 37,140,388 |                          | $      | 751,678 |   |

 

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

 

3

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**Dividend Capital Trust Inc. and Subsidiary**

** **

**Condensed Consolidated Statements ofOperations**

**(Unaudited)**

 
|                                                      |   | **Three Months  Ended  June 30, 2003** |    | **Six Months  Ended  June 30, 2003** |   | **For the Period From  Inception (April 12,  2002) through  June 30, 2002** |   |
|-----------------------------------------------------------|--------|----------------------------------------|---------|--------------------------------------|--------|-----------------------------------------------------------------------------|--------|
|                                                      |   |                                   |    |                                 |   |                                                                        |   |
| **REVENUE:**                                              |   |                                   |    |                                 |   |                                                                        |   |
| Rental revenue                                            |   | $                                      | 117,596 |                                 | $      | 117,596                                                                     |   | $ | — |   |
| Other income                                              |   | 39,088                                 |    | 39,920                               |   | —                                                                      |   |
| **Total Income**                                          |   | 156,684                                |    | 157,516                              |   | —                                                                      |   |
|                                                      |   |                                   |    |                                 |   |                                                                        |   |
| **EXPENSES:**                                             |   |                                   |    |                                 |   |                                                                        |   |
| Depreciation & amortization                           |   | 68,604                                 |    | 68,604                               |   | —                                                                      |   |
| Interest expense                                          |   | 26,278                                 |    | 26,278                               |   | —                                                                      |   |
| General and administrative  expenses                 |   | 33,258                                 |    | 105,706                              |   | 13,300                                                                      |   |
| **Total Operating Expenses**                              |   | 128,140                                |    | 200,588                              |   | 13,300                                                                      |   |
|                                                      |   |                                   |    |                                 |   |                                                                        |   |
| **NET INCOME (LOSS)**                                     |   | $                                      | 28,544  |                                 | $      | (43,072                                                                     | )      | $ | (13,300 | ) |
|                                                      |   |                                   |    |                                 |   |                                                                        |   |
| **WEIGHTED AVERAGE NUMBER OF COMMON  SHARES OUTSTANDING** |   |                                   |    |                                 |   |                                                                        |   |
| Basic                                                     |   | 1,809,351                              |    | 1,041,931                            |   | 200                                                                         |   |
|                                                      |   |                                   |    |                                 |   |                                                                        |   |
| Diluted                                                   |   | 1,829,351                              |    | 1,041,931                            |   | 200                                                                         |   |
|                                                      |   |                                   |    |                                 |   |                                                                        |   |
| **NET INCOME (LOSS) PER COMMON  SHARE**                   |   |                                   |    |                                 |   |                                                                        |   |
| Basic and Diluted                                         |   | $                                      | 0.02    |                                 | $      | (0.04                                                                       | )      | $ | (66.50 | ) |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

4

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**Dividend Capital Trust Inc. and Subsidiary**

** **

**Condensed Consolidated Statements ofShareholders****’Equity (Deficit)**

**For the Six Months Ended June 30, 2003**

**(Unaudited)**

 
|                                                           |   | **Common Shares** |   | **Additional  Paid-in****Capital** |   | **Distributions in  Excess of****Earnings** |   | **Total********Shareholders’  Equity****(Deficit)** |   |
|----------------------------------------------------------------|--------|-------------------|--------|------------------------------------|--------|---------------------------------------------|--------|----------------------------------------------------------|--------|
|                                                           |   |              |   |                               |   |
|                                                           |   | **Shares**        |   | **Amount**                         |   |                                        |   |                                                     |
|                                                           |   |              |   |                               |   |                                        |   |                                                     |   |   |   |
| **Balances, December 31, 2002**                                |   | 200               |   | $                                  | 2      |                                        | $      | 1,998                                                    |   | $ | (12,712 | ) | $ | (10,712 | ) |
|                                                           |   |              |   |                               |   |                                        |   |                                                     |   |   |   |
| Issuance of common stock, net of offering costs of  $3,617,309 |   | 2,893,647         |   | 28,936                             |   | 25,290,227                                  |   | —                                                   |   | 25,319,163 |   |
|                                                           |   |              |   |                               |   |                                        |   |                                                     |   |   |   |
| Amortization of stock options                                  |   | —            |   | —                             |   | 927                                         |   | —                                                   |   | 927 |   |
|                                                           |   |              |   |                               |   |                                        |   |                                                     |   |   |   |
| Common share dividend                                          |   | —            |   | —                             |   | —                                      |   | (283,637                                                 | )      | (283,637 | ) |
|                                                           |   |              |   |                               |   |                                        |   |                                                     |   |   |   |
| Net loss                                                       |   | —            |   | —                             |   | —                                      |   | (43,072                                                  | )      | (43,072 | ) |
|                                                           |   |              |   |                               |   |                                        |   |                                                     |   |   |   |
| **Balances, June 30, 2003**                                    |   | 2,893,847         |   | $                                  | 28,938 |                                        | $      | 25,293,152                                               |   | $ | (339,421 | ) | $ | 24,982,669 |   |

 

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

 

5

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**Dividend Capital Trust Inc. and Subsidiary**

** **

**Condensed Consolidated Statements of CashFlows**

**(Unaudited)**

 
|                                                                                       |   | **For the Six  Months Ended  June 30, 2003** |       | **For the Period from  Inception (April 12,  2002) through  June 30, 2002** |       |
|--------------------------------------------------------------------------------------------|--------|----------------------------------------------|------------|-----------------------------------------------------------------------------|------------|
|                                                                                       |   |                                         | ** ** |                                                                        | ** ** |
| **OPERATING ACTIVITIES:**                                                                  |   |                                         |       |                                                                        |       |
| Net loss                                                                                   |   | $                                            | (43,072    | )                                                                           | $          | (13,300 | ) |
| Adjustments to reconcile net loss to net cash  provided by (used in) operating activities: |   |                                         |       |                                                                        |       |
| Depreciation and amortization                                                              |   | 72,817                                       |       | —                                                                      |       |
| Increase in other assets                                                                   |   | (16,596                                      | )          | —                                                                      |       |
| Increase in accounts payable and accrued expenses                                          |   | 195,764                                      |       | 7,500                                                                       |       |
| **Net cash provided by (used in)  operating activities**                                   |   | 208,913                                      |       | (5,800                                                                      | )          |
|                                                                                       |   |                                         |       |                                                                        |       |
| **INVESTING ACTIVITIES:**                                                                  |   |                                         |       |                                                                        |       |
| Real estate investments                                                                    |   | (21,630,000                                  | )          | —                                                                      |       |
| Increase in intangible lease and acquisition costs                                         |   | (2,853,672                                   | )          | —                                                                      |       |
| Increase in deferred acquisition costs                                                     |   | (322,693                                     | )          | —                                                                      |       |
| **Net cash used in investing  activities**                                                 |   | (24,806,365                                  | )          | —                                                                      |       |
|                                                                                       |   |                                         |       |                                                                        |       |
| **FINANCING ACTIVITIES:**                                                                  |   |                                         |       |                                                                        |       |
| Increase (decrease) in advance for offering costs,  related party                          |   | 52,923                                       |       | (187,263                                                                    | )          |
| Increase in deferred financing costs                                                       |   | (42,563                                      | )          | —                                                                      |       |
| Proceeds from mortgage                                                                     |   | 11,350,000                                   |       | —                                                                      |       |
| Increase in amounts due from transfer agent                                                |   | (381,082                                     | )          | —                                                                      |       |
| Increase in investor deposits                                                              |   | 247,818                                      |       | —                                                                      |       |
| Proceeds from sale of common shares                                                        |   | 28,936,472                                   |       | 2,000                                                                       |       |
| Offering costs for issuance of common stock                                                |   | (3,617,309                                   | )          | —                                                                      |       |
| Proceeds from issuance of Partnership Units to  related party                              |   | —                                       |       | 200,000                                                                     |       |
| **Net cash provided by financing  activities**                                             |   | 36,546,259                                   |       | 14,737                                                                      |       |
|                                                                                       |   |                                         |       |                                                                        |       |
| **NET INCREASE IN CASH AND CASH  EQUIVALENTS**                                             |   | $                                            | 11,948,807 |                                                                        | $          | 8,937 |   |
|                                                                                       |   |                                         |       |                                                                        |       |
| **CASH AND CASH EQUIVALENTS,  beginning of period**                                        |   | $                                            | 11,055     |                                                                        | $          | — |   |
|                                                                                       |   |                                         |       |                                                                        |       |
| **CASH AND CASH EQUIVALENTS, end of  period**                                              |   | $                                            | 11,959,862 |                                                                        | $          | 8,937 |   |

 

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

 

6

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**DividendCapital Trust Inc. and Subsidiary**

 

**Notesto Condensed Consolidated Financial Statements**

**(Unaudited)**

 

**Note 1—Organization and Summary ofSignificant Accounting Policies**

 

*Organization*

 

DividendCapital Trust Inc. (the “Company”) was formed as a Maryland corporationin April 2002 in order to invest in commercial real estate propertiesconsisting primarily of high-quality industrial buildings net leased tocreditworthy corporate tenants. The Company intends to qualify as a real estate investment trust (“REIT”)for federal tax purposes commencing with its taxable year ending December 31,2003.  The Company is structured as anumbrella partnership REIT (“UPREIT”) under which substantially all of theCompany’s current and future business is and will be conducted through acontrolling interest in a subsidiary, Dividend Capital Operating Partnership LP(the “Partnership”), a Delaware limited partnership.  The Company commenced its operations in conjunction with theclosing of its first real estate acquisition on June 9, 2003 (see Note 2) andas a result the financials statements of the Company are no longer presented asa development stage enterprise.

 

DividendCapital Advisors LLC (the “Advisor”) provides investment management andadministrative services to the Company under an Advisory Agreement dated July11, 2002.  Dividend Capital SecuritiesLLC (the “Dealer Manager”) serves as the dealer manager of the Company’s publicoffering (see Note 7).

 

*Interim Financial Information*

 

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America and with theinstructions to Form 10-Q and Article 10 of Regulation S-X for interimfinancial information.  Accordingly,these statements do not include all of the information and footnotes requiredby accounting principles generally accepted in the United States of America forcomplete financial statements.  In theopinion of management, the accompanying unaudited condensed consolidatedfinancial statements include all adjustments, consisting only of normalrecurring items necessary for their fair presentation in conformity withaccounting principles generally accepted in the United States of America.  Preparing financial statements requiresmanagement to make estimates and assumptions that affect the reported amountsof assets, liabilities, revenue and expenses. Actual results may differ from these estimates.  Interim results are not necessarilyindicative of results for a full year. The information included in this Form 10-Q should be read in conjunctionwith Management’s Discussion and Analysis of Financial Condition and Results ofOperations contained elsewhere in this report, the Company’s audited financialstatements as of December 31, 2002 and related notes thereto, and the Company’sprospectus.

 

7

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*Principles of Consolidation*

 

The accounts of the Companyand the Partnership, its controlled subsidiary, are consolidated in theaccompanying financial statements.  Allsignificant intercompany accounts and transactions have been eliminated inconsolidation.

* *

*Use of Estimates*

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect amounts reported inthe consolidated financial statements. Actual results could differ from thoseestimates. Estimates and assumptions are reviewed periodically and the effectsof revision are reflected in the period they are determined to be necessary.

 

*Real Estate*

 

Upon the acquisition of operating properties, the Company allocates thepurchase price of the properties to identifiable tangible and intangible assetsassociated with the property based upon their estimated fair values inaccordance with SFAS No. 141, “Business Combinations.”  These tangible and intangible assets aredepreciated or amortized over the useful life of such assets.  In some cases the acquired operatingproperty will have in-place leases where the current rental rate is above orbelow market rental rates.  In suchcases, the discounted difference between the current and market rental rates isrecorded as an asset or liability and amortized over the life of the lease torental revenue.  In addition, theCompany allocates any other difference between purchase price and the estimatedfair market value of the acquired land, building and other tangible assets tointangible lease and acquisitions costs.

* *

*Cash and Cash Equivalents*

 

The Company considers all highly liquid instruments with maturitieswhen purchased of three months or less to be cash equivalents.

* *

*Restricted Cash*

 

The Company is currently engaged in a public offering of its commonstock.  As of December 31, 2002, theCompany had not met certain escrow requirements in connection with theoffering. Until the Company received subscriptions covering at least 200,000shares from at least 100 non-affiliated investors, offering proceeds wererequired to be held in escrow.  Theescrow conditions were satisfied on February 10, 2003, at which time 226,567shares of common stock were issued to investors.

* *

*Costs of Raising Capital*

 

Costs incurred in connection with the issuance of equity securities arededucted from shareholders’ equity.

 

8

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*Revenue Recognition*

 

Upon the acquisition of realestate, properties may have certain leases that provide for tenant occupancyduring periods for which no rent is due or where minimum rent payments increaseduring the term of the lease. The Company will record rental revenue for thefull term of each lease on a straight-line basis. Accordingly, the Company willrecord a receivable from tenants that the Company expects to collect over theremaining lease term rather than currently, which will be recorded as deferredrents receivable. When the Company acquires a property, the term of existingleases is considered to commence as of the acquisition date for the purposes ofthis calculation.

 

*Income Taxes*

 

The Companyintends to meet all the requirements to qualify for REIT status and will makean election under Internal Revenue Code Section 856 for the taxable year endingDecember 31, 2003.  In order for a formerC corporation to elect to be a REIT, it must distribute 100% of its Ccorporation earnings and profits and agree to be subject to Federal tax at thecorporate level to the extent of any subsequently recognized built-in gainswithin a ten year period.  The Companydoes not anticipate that it will have any built-in gains at the time of itsconversion to REIT status.  As a REIT,the Company generally will not be subject to Federal income taxation at thecorporate level to the extent it distributes annually all of its REIT taxableincome, as defined in the Internal Revenue Code, to its shareholders andsatisfies other requirements.  Noprovision has been made for Federal income taxes in the accompanying condensedconsolidated financial statements.

 

*Stock-Based Compensation*

 

The Companyhas two stock-based employee and director compensation plans.  As of June 30, 2003, the Company had granted40,000 options under the Director Stock Option Plan.  The Company accounts for these plans under the fair valuerecognition provisions of Statement of Financial Accounting Standards (“SFAS”)No. 123, “Accounting for Stock-Based Compensation,” and relatedinterpretations.

 

*Basic and Diluted Net Income (Loss) Per Common Share*

 

Basic net income (loss) percommon share is determined by dividing net income (loss) attributable to commonshareholders by the weighted average number of common shares outstanding duringthe period. Diluted net income per common share includes the effects ofpotentially issuable common stock, but only if dilutive, including the presumedexchange of limited partnership units (see Note 5) for common shares.

 

*New Accounting Principles*

 

In April 2002, the Financial Accounting StandardsBoard (“FASB”) issued SFAS No. 145 “Rescission of FASB Statements No. 4, 44,and 64, Amendment of FASB Statement No. 13, and Technical Corrections.”  The Company was required to adopt SFAS No.145 on January 1, 2003.  SFAS No. 145significantly limits the treatment of losses associated with early

 

9

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extinguishmentof debt as an extraordinary item.  Uponadoption, early extinguishments will not continue to qualify for extraordinaryitem treatment.  The adoption of SFASNo. 145 did not have a material impact on the Company’s financial position,results of operations or cash flows.

 

In July 2002, the FASB issued SFAS No. 146 “Accounting for CostsAssociated with Exit or Disposal Activities.” The Company was required to adopt SFAS No. 146 on January 1, 2003.  SFAS No. 146 requires that certain expensesassociated with restructuring charges be accrued as liabilities in the periodin which the liability is incurred.  Theadoption of SFAS No. 146 did not have a material impact on the Company’s financialposition, results of operations or cash flows.

 

In January2003, the FASB issued Interpretation No. 46 “Consolidation of Variable InterestEntities.”  The Company is required toadopt the Interpretation for financial statements for the fiscal year orinterim period beginning after June 15, 2003. This Interpretation clarifies the application of Accounting ResearchBulletin No. 51, “Consolidated Financial Statements,” and requires theconsolidation of results of variable interest entities in which the Company hasa majority variable interest. .  TheCompany does not expect that the adoption this Interpretation will have amaterial impact on the Company’s financial position, results of operations orcash flows.

 

                In May 2003,the FASB issued SFAS No. 150, "Accounting for Certain Financial Instrumentswith Characteristics of both Liabilities and Equity."  SFAS No. 150 requires that an issuer thatpossesses certain financial instruments to classify such instruments as aliability (or as an asset in some circumstances).  SFAS No. 150 is effective for financial instruments entered intoor modified after May 31, 2003, and otherwise is effective at the beginning ofthe first interim period beginning after June 15, 2003.  Management is currently evaluating SFAS No.150, however the Company does not expect the adoption of SFAS No. 150 to have amaterial impact, if any, on the Company's financial position and results ofoperations.

 

**Note 2 –Real Estate**

 

On June 9,2003, the Company purchased a one story, single tenant, newly constructeddistribution facility located in Nashville, Tennessee (the “Property”).  The Property contains 756,000 rentablesquare feet and is located on approximately 50 acres of land.  The purchase price for the Property was$23,500,000, which was paid with $11,350,000 from our senior secured loan (seenote 3) and $12,150,000 from proceeds from our public offering (see Note4).  The total cost of the Nashvillefacility including closing costs and other expenses (including an acquisitionfee of $705,000 payable to the Advisor) was approximately $24,480,000.  The results of operations from this acquiredproperty, from the date of acquisition through June 30, 2003, are included inthe Company's results of operations for the three and six months ended June 30,2003.

 

**Note 3 –Borrowings**

 

On June 9, 2003, the Company obtained an $11,350,000senior secured loan (the “Loan”) from Bank of America, N.A., at a variableannual interest rate equal to adjusted LIBOR plus 2.25% or (at the election ofDividend Capital) 1.0% over the Prime rate. As of June 30, 2003, the interestrate was 3.513%.  The Loan provides formonthly amortization based on an assumed 8%/25 year schedule commencing on theone year anniversary of the closing. The Loan, which is pre-payable in whole or part at any time, matures twoyears from closing at which time a balloon payment is scheduled.  The terms of the Loan include certainfinancial covenants relating to minimum net worth, minimum liquidity, fixedcharge average and total debt to total assets ratios that are tested on anannual and quarterly basis.  As of June30, 2003, the Company was in compliance with all covenants included in theLoan.

 

10

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**Note 4 – Public Offering**

 

On April 15,2002, the Company filed a registration statement (the “Registration Statement”)with the Securities and Exchange Commission covering a public offering of itscommon stock. The Registration Statement was declared effective on July 17,2002 and the Company had received clearance of its offering in forty-ninestates as of December 2002.  The commonstock is being offered at a price of $10 per share on a 200,000 share minimum,25,000,000 share maximum, best-efforts basis. The Registration Statement alsocovers up to 4,000,000 shares available pursuant to the Company’s distributionreinvestment plan and up to 1,000,000 shares issuable upon the exercise ofwarrants that may be sold to broker-dealers participating in the offering.  Until the Company received subscriptionscovering at least 200,000 shares from at least 100 non-affiliated investors,offering proceeds were required to be held in escrow.  The escrow conditions were satisfied on February 10, 2003, atwhich time 226,567 shares of common stock were issued to investors.  As of June 30, 2003, 2,893,847 shares ofcommon stock have been sold under this Registration Statement for grossproceeds of $28,938,470.

 

**Note 5 –Minority Interest**

 

Minority interestconsists of the following as of:

 
|                               |   | **June 30,  2003** |   | **December 31,  2002** |   |
|------------------------------------|--------|--------------------|--------|------------------------|--------|
|                               |   |               |   |                   |   |
| Limited partnership  units         |   | $                  | — |                   | $      | — |   |
| Limited partnership  Special Units |   | 1,000              |   | 1,000                  |   |
| Total                              |   | $                  | 1,000  |                   | $      | 1,000 |   |

 

*Limited Partnership Units*

 

Upon inception(April 12, 2002), thePartnership issued to the Advisor 20,000 limited partnership units in exchangefor $200,000 representing an initial 99% limited partnership interest.  As of June 30, 2003, the Advisor held a limited partnership interest in the Partnership of approximately0.7%.

 

The allocation ofnet loss to the limited partnership unit holder for the period ended December31, 2002 has reduced the minority interest balance to zero.  The excess loss attributable to the minorityinterest for the periods ended December 31, 2002 and June 30, 2003 was $10,758and $1,574, respectively.  The totalaccumulated excess loss of $12,332 will be applied to future incomeattributable to the minority interest.

 

Limited partnershipunits are redeemable at the option of the unit holder.  The Partnership, at its sole discretion, hasthe option of redeeming the limited partnership units with cash or with commonshares.

 

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*Limited Partnership Special Units*

 

During the quarterended September 30, 2002, the Partnership issued 10,000 special units (the“Special Units”) to an affiliate of the Advisor for consideration of$1,000.  The holders of Special Units donot participate in the profits and losses of the Partnership.  Amounts distributable to the holder of the Special Units will depend onoperations and the amount of net sales proceeds received from propertydispositions or upon other events.  Ingeneral, after holders of regular partnership interests have receivedcumulative distributions equal to their capital contributions plus a 7% cumulativenon-compounded annual return on their gross contributions, the holder of theSpecial Units and the holders of regular partnership interests will receive 15%and 85%, respectively, of the net sales proceeds received by the Partnershipupon the disposition of the Partnership’s assets.

 

The Special Units will beredeemed by the Partnership for cash upon the occurrence of specified eventsthat result in a termination or non-renewal of the Advisory Agreement.  If the Advisory Agreement is terminated bythe Company for cause, the redemption price shall be $1.  If the Company’s shares are listed forpublic trading or if the Advisory Agreement is terminated upon the occurrenceof certain other events, the redemption price of the Special Units will be theamount which would have been distributed to the holder of the Special Units ifthe Partnership had sold all of its assets for their then fair market values,paid all of its liabilities and distributed any remaining amounts to partnersin liquidation in accordance with the partnership agreement of the Partnership.  The fair market value of the assets will bedetermined by the public market prices in the event of a listing of theCompany’s shares or by the net sales proceeds received in the event of thedisposition of the Company’s properties. In the case of certain other events, fair market value will bedetermined by the then fair market value of the Partnership’s assets, asdetermined by an appraisal, less all of its liabilities.

 

**Note 6 – Distributions toShareholders**

 

On March 31, 2003, the board of directorsof the Company declared a dividend for the second quarter of 2003 equal to a6.25% annualized rate of return based on an investment of $10.00 pershare.  The Company’s second quarterdistribution was calculated on a daily basis for stockholders of record asshown on the books of the Company at the close of business on each day duringthe period commencing April 1, 2003 and continuing on each day thereafterthrough and including June 30, 2003. The total distribution of approximately $284,000 was paid on July 15,2003, with approximately $159,000 paid with cash and approximately $125,000paid through the issuance of common shares pursuant to our dividendreinvestment plan.

 

On June 30, 2003, the board of directorsof the Company declared a dividend for the third quarter of 2003 equal to a6.25% annualized rate of return based on an investment of $10.00 pershare.  The Company’s third quarterdistribution will be calculated on a daily basis for stockholders of record asshown on the books of the Company at the close of business on each day duringthe period commencing July 1, 2003 and continuing on each day thereafterthrough and including September 30, 2003.

 

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**Note 7 – Related Party Transactions**

 

*AdvisoryTransactions*

 

The Advisor isconsidered a related party as certain executives and board members of theCompany have material, indirect ownership interests in the Advisor.  The Company has entered into the AdvisoryAgreement with the Advisor pursuant to which the Company will pay certainacquisition and advisory fees to the Advisor. The amount of such fees shall equal up to 3.0% of the aggregate purchaseprice of all properties acquired by the Company.  As of June 30, 2003, the Company had paid the Advisor $705,000 inconnection with the acquisition services provided by the Advisor.

 

The Companywill be responsible for the payment of all organization and offering expensesnot to exceed 3.0% of gross offering proceeds. The Advisor is obligated to fund all organization and offering expensesin excess of 3.0% of gross offering proceeds. As of June 30, 2003, the Advisor had funded approximately $7.6 millionof offering related costs.  The Companyhas reimbursed the Advisor approximately $847,000 of these costs as of June 30,2003.  The Company will continue toreimburse the Advisor at a rate of 3.0% of gross proceeds raised through theCompany’s initial offering.

 

*Dealer ManagerTransactions*

 

The DealerManager is considered a related party as certain executives and board membersof the Company have material, indirect ownership interests in the DealerManager.  The Company has entered into adealer manager agreement with the Dealer Manager pursuant to which the Companywill pay up to 2.5% of gross offering proceeds to the Dealer Manager ascompensation for managing the offering. The Dealer Manager may re-allow a portion of such fees to broker-dealerswho participate in the offering.  TheCompany will also pay a 7% sales commission on shares sold in the offering.  The Dealer Manager has indicated that all ofthe sales commissions are expected to be paid to participating broker-dealerswho are responsible for effecting sales. As of June 30, 2003, the Company had incurred approximately $2,749,000for commissions and management of the Company’s initial offering, of whichapproximately $2,026,000 has been paid to selling broker-dealers who are notaffiliated with the Company.

 

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**Note 8 – SubsequentEvents**

 

*Acquisition*

 

On July 22,2003, the Company closed on an acquisition of two distribution facilitieslocated in Memphis, Tennessee totaling approximately 392,000 square feet.  The combined purchase price of $14,280,000was funded from the net proceeds received from the Company’s publicoffering.  As of July 22, 2003, the twofacilities were approximately 94.0% leased with the remaining vacancy masterleased by the seller for a period of twelve months.  The following table summarizes certain information as it relatesto each building:

 
| **Building**         |   | **Purchase  Price** |       | **Square  Footage** |    | **Occupancy  Rate** |   |
|----------------------|--------|---------------------|------------|---------------------|---------|---------------------|--------|
|                 |   |                |       |                |    |                |   |
| Chickasaw Building A |   | $                   | 5,100,000  |                | 108,250 |                | 79     | % |
| Chickasaw Building H |   | 9,180,000           |       | 283,756             |    | 100                 | %      |
| Total/Average        |   | $                   | 14,280,000 |                | 392,006 |                | 94     | % |

 

*Public Offering*

 

As of August8, 2003, the Company had sold 4,020,046 shares of common stock for grossproceeds of $40,200,460.  As of August8, 2003, the Company had incurred fees payable to the Advisor and the DealerManager in the amount of $1,206,014 and $3,819,044, respectively.   Of the amount payable to the DealerManager, $2,814,032 is payable by the Dealer Manger to selling broker-dealerswho are not affiliated with the Company.

 

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

 

This report on Form 10-Q contains certainforward-looking statements.  When usedin this report, the words “may,” “will,” “expect,” “anticipate,” “continue,”“estimate,” “project,” “intend,” “believe,” and similar expressions areintended to identify forward-looking statements within the meaning of Section27A of the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934.  There are various factorsthat could cause actual results to differ materially from those which areexpressed in, or implied by, such forward-looking statements.  Such factors include changes in generaleconomic conditions, changes in real estate conditions, changes in interestrates, the amount of equity capital provided by the Company’s public offering,the availability of debt financing on terms that are favorable to the Company,the ability of the Company to acquire and lease properties on favorable terms,and the ability of tenants to make payments under their respective leases.  Readers of this filing are cautioned toconsider these uncertainties in connection with all forward-looking statements.

 

**Overview**

 

Dividend Capital Trust Inc. was formed as a Maryland corporation inApril 2002 in order to invest in commercial real estate properties consistingprimarily of high-quality industrial buildings net leased to creditworthycorporate tenants.  The Companyintends to qualify as a REIT for federal tax purposes commencing with itstaxable year ending December 31, 2003. The Company is structured as an UPREIT under which substantially all ofthe Company’s current and future business is and will be conducted through acontrolling interest in a subsidiary, Dividend Capital Operating PartnershipLP.

 

On April 15, 2002, the Company filed a registrationstatement (the “Registration Statement”) with the Securities and ExchangeCommission covering a public offering of its common stock. The RegistrationStatement was declared effective on July 17, 2002 and the Company had receivedclearance of its offering in forty-nine states as of December 2002.  The common stock is being offered at a priceof $10 per share on a 200,000 share minimum, 25,000,000 share maximum,best-efforts basis. The Registration Statement also covers up to 4,000,000shares available pursuant to the Company’s distribution reinvestment plan andup to 1,000,000 shares issuable upon the exercise of warrants that may be soldto broker-dealers participating in the offering.  Until the Company received subscriptions covering at least200,000 shares from at least 100 non-affiliated investors, offering proceedswere required to be held in escrow.  Theescrow conditions were satisfied on February 10, 2003, at which time 226,567shares of common stock were issued to investors.

 

**Results of Operations**

 

*Summary*

 

During the six months ended June 30, 2003, theCompany acquired its first real estate asset for a purchase price of$23,500,000, of which $11,350,000 was funded by debt and the remaining$12,150,000 was funded from the proceeds from our public offering.

 

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As a result of this acquisition and due to the factthe period from inception through June 30, 2002 did not represent a full sixmonth’s activity, the results of our operations for the three and six monthperiods ended June 30, 2003 have significant differences compared to ourresults of operations for the period from inception (April 12, 2002) throughJune 30, 2002.

 

*Rental Revenue*

 

The increase in rentalrevenue is attributable to the acquisition of the Nashville facility. Rentalrevenue reported for the three and six months ended June 30, 2003 representsrevenue for a partial month from the Nashville facility.

 

*Other Income*

 

Other income increased primarilydue to approximately $40,000 of interest earned from cash balances held ininterest bearing bank accounts during the period ended June 30, 2003.

 

*Depreciation on Real Estate Investments*

 

The increase in depreciationassociated with real estate investments is a result of a partial month’sdepreciation on the acquisition of the Nashville facility.

 

*Interest Expense*

 

The increase in interestexpense is attributable to the senior secured loan obtained to finance theclosing of the Nashville facility.

 

*General and Administrative Expenses*

 

The increase in general andadministrative expenses is attributable to the period ending June 30, 2003containing a full three and six months operations versus the period frominception (April 12, 2002) through June 30, 2002.

 

**Liquidity and Capital Resources**

 

*Overview*

 

The Company’s management iscommitted to maintaining a strong balance sheet and preserving the Company’sfinancial flexibility, which management believes enhances its ability tocapitalize on attractive investment opportunities as they becomeavailable.  The Company’s managementbelieves its liquidity and ability to generate cash from its operatingactivities and financing activities are adequate to meet all of the Company’scash flow needs during 2003 and for the foreseeable future. See the Company’sCondensed Consolidated Statements of Cash Flows for a summary of operating,investing and financing activities for the six months ended June 30, 2003.

 

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*Operating Activities*

 

Cash flow provided byoperating activities increased for the six month period ended June 30, 2003compared to the period from inception (April 12, 2002) through June 30, 2002primarily due to the cash flow provided by the Nashville acquisition.  In addition, the Company realized highergeneral and administrative costs which were partially offset by an increase ininterest income. See “Results of Operations” for a more complete discussion ofthe factors impacting our operating performance.

 

*Investing and Financing Activities*

 

The funds used in investingactivities increased primarily due to the acquisition of the Nashville facilityand the associated acquisition costs. In addition, the deferred acquisition costs was greater during the periodended June 30, 2003 compared to the period ended June 30, 2002.

 

Funds provided by financingactivities increased primarily due to the proceeds received from the Company’spublic offering, which were partially offset by the increase in offering costs.As of June 30, 2003, the Company had sold 2,893,847 shares of common stock forgross proceeds of approximately $28,938,470. In addition, funds provided byfinancing activities increased as a result of the senior secured debt incurredto fund the Nashville acquisition in the amount of $11,350,000.

 

*Debt Service Requirements*

 

The Company financed$11,350,000 of the purchase price for the acquisition of the Nashville,Tennessee distribution facility with a senior secured loan.  The senior secured loan from Bank of America,N.A., is at a variable annual interest rate equal to adjusted LIBOR plus 2.25%or (at the election of the Company) 1.0% over the Prime rate.  As of June 30, 2003 the interest rate was3.513%.  The first year of the loanrequires monthly interest payments only. The loan provides for monthly amortization based on an 8%/25 yearschedule commencing on the one year anniversary of the closing.  The loan, which is prepayable in whole or inpart at any time, matures two years from closing at which time a balloonpayment is scheduled.

 

The Company was incompliance with all of its financial covenants pertaining to its debt as ofJune 30, 2003.

 

**CriticalAccounting Policies**

 

*General*

 

The following discussion pertains to criticalaccounting policies management believes are most “critical” to the portrayal ofthe Company’s financial condition and results of operations which requiremanagement’s most difficult, subjective or complex judgments. These judgmentsoften result from the need to make estimates about the effect of matters thatare inherently uncertain.  Thisdiscussion addresses judgments known to management pertaining to trends,

 

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eventsor uncertainties known which were taken into consideration upon the applicationof those policies and the likelihood that materially different amounts would bereported upon taking into consideration different conditions and assumptions.The following discussion of critical accounting policies was written inaddition to the discussion of critical accounting policy discussed in our Form10-K filed for the year ended December 31, 2002 and as such should be read inconjunction with such filing.

 

*RealEstate Acquisitions*

 

Upon the acquisition of operating properties, managementmust make significant assumptions in order to allocate the purchase price ofthe properties to identifiable tangible and intangible assets associated withthe property in accordance with SFAS No. 141, “Business Combinations.”  Management uses the best informationavailable such as appraisals, current market rental rates, rental growth,discount rates and other variables to determine the most appropriateallocation.  However, if inappropriatevariables are used in regards to these estimates, misclassification of assetsor liabilities and incorrect calculation of depreciation amounts would occur,which would misstate our net income.

 

**ITEM3.  QUANTITATIVE AND QUALITATIVE****DISCLOSUREABOUT MARKET RISK**

 

The Company hasobtained floating rate debt financing (described below) to fund a propertyacquisition, and therefore it is exposed to interest rate changes. TheCompany’s interest rate risk management objectives are to limit the impact ofinterest rate changes on earnings and cash flows and to lower its overallborrowing costs.  To achieve itsobjectives, the Company may borrow primarily at fixed rates or variable rateswith the lowest margins available and in some cases, with the ability toconvert variable rates to fixed rates. The Company may enter into derivativefinancial instruments such as interest rate swaps, caps and treasury locks inorder to mitigate any interest rate risk on a related financialinstrument.  The Company does not enterinto derivative or interest rate transactions for speculative purposes.

 

On June 9, 2003, the Companyobtained an $11,350,000 senior secured loan (the “Loan”) from Bank of America,N.A., at a variable annual interest rate equal to adjusted LIBOR plus 2.25% or(at the election of Dividend Capital) 1.0% over the Prime rate. As of June 30,2003, the interest rate was 3.513%.  TheLoan provides for monthly amortization based on an assumed 8%/25 year schedulecommencing on the one year anniversary of the closing.  The Loan, which is pre-payable in whole orpart at any time, matures two years from closing at which time a balloonpayment is scheduled.  The terms of theLoan include certain financial covenants relating to minimum net worth, minimumliquidity, fixed charge average and total debt to total assets ratios that aretested on an annual and quarterly basis. As of June 30, 2003, the Company was in compliance with all covenantsassociated with the Loan.

 

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**ITEM4.  CONTROLS AND PROCEDURES**

 

*Evaluation of Disclosure Controls and Procedures*

 

Regulations under theSecurities Exchange Act of 1934 require public companies to maintain“disclosure controls and procedures,” which are defined to mean a company’scontrols and other procedures that are designed to ensure that information requiredto be disclosed in the reports that it files or submits under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported, withinthe time periods specified in the Commission’s rules and forms.  The Company’s chief executive officer andchief financial officer, based on their evaluation of the Company’s disclosurecontrols and procedures before the filing date of this report, concluded thatCompany’s disclosure controls and procedures were effective for this purpose.

 

*Changes in Internal Controls*

 

There were no significantchanges in the Company’s internal controls or, to the Company’s knowledge, inother factors that could significantly affect these controls subsequent to thedate of their evaluation.

 

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**PART II. OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

None.

 

**ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS**

None.

 

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

None.

##  

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

None.

 

**ITEM 5. OTHER INFORMATION**

None.

##  

**ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K**

 
| **a.** |   | **Exhibits**                                                                                |
|--------|--------|---------------------------------------------------------------------------------------------|
|   |   | 31.1                                                                                        | Certificate of Chief Executive Officer pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. |
|   |   | 31.2                                                                                        | Certificate of Chief Financial Officer pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. |
|   |   | 32                                                                                          | Certificate of Chief Executive Officer and Chief Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|   |   |                                                                                        |   |
| **b.** |   | **Reports on Form 8-K**                                                                     |
|   |   | The following reports were filed during the quarter for the period  covered by this report: |
|   |   | Report on Form 8-K dated August 5, 2003.                                                    |
|   |   | Item 2: Acquisitions or Dispositions of  Assets                                             |
|   |   | Item 7:   Financial Statements and Exhibits                                            |
|   |   | Report on Form 8-K dated June 25, 2003                                                      |
|   |   | Item 2: Acquisitions or Dispositions of  Assets                                             |
|   |   | Item 7:   Financial Statements and Exhibits                                            |

 

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**SIGNATURES**

** **

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

 

 
|   | DIVIDEND CAPITAL TRUST INC. |
|--------|-----------------------------|
|   |                        |
|   |                        |
|   | Date: August 13, 2003       | */s/*Evan  H. Zucker |   |
|   |                        | Evan H. Zucker |
|   |                        | *Chief Executive  Officer* |
|   |                        |   |
|   |                        |   |
|   | Date: August 13, 2003       | */s/*James  R. Mulvihill |   |
|   | James R. Mulvihill          |
|   | *Chief Financial  Officer*  |
|        |                             |  |  |  |

 

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