** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

**FORM 10-K**

** **
| **(Mark  One)**                                                                                                                                                                                                                                                                             |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                        |
| **ý****ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                        |
| **For  the fiscal year ended December 31, 2003**                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                        |
| **OR**                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                        |
| **o****TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                        |
| **For  the transition period from                        to                      ** |
|                                                                                                                                                                                                                                                                                        |
| **Commission  file number 333-86234**                                                                                                                                                                                                                                                       |

 

**DIVIDEND CAPITAL TRUST INC.**

(Exact name of registrantas specified in its charter)

 
| **Maryland**                                                     |   | **82-0538520**                           |
|------------------------------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction  of incorporation or organization) |   | (I.R.S. Employer  Identification Number) |
|                                                             |   |                                     |
| **518 Seventeenth Street, 17****th****Floor  Denver, CO**        |   | **80202**(Zip Code)                      |
| (Address of Principal  Executive Offices)                        |   |                                     |
|                                                             |   |                                     |
| **(303) 228-2200**                                               |
| (Issuer’s Telephone  Number, Including Area Code)           |
|                                                             |   |                                     |
| Securities registered  under Section 12(b) of the Exchange Act:  |
|                                                             |   |                                     |

 

|   | **Title of  Each Class** |   | **Name of  Each Exchange on Which Registered** |   |
|--------|--------------------------|--------|------------------------------------------------|--------|
|   |                     |   |                                           |   |
|   | **None**                 |   | **None**                                       |   |

 
| Securities registered  under Section 12(g) of the Exchange Act: |
|-----------------------------------------------------------------|

 

**None**

(Titleof Class)

 

Indicate by check mark whether the registrant: (1)filed all reports required to be filed by Section 13 or 15(d) of the ExchangeAct during the past 12 months (or for such shorter period that the registrantwas required to file such reports); and (2) has been subject to such filingrequirements for the past 90 days. Yes  ý  No  o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to be the best of registrant’s knowledge, in definitive proxyor information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form 10-K.  ý

 

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

 

There were 2,893,647 shares of the registrant owned bynon-affiliates as of the last business day of the registrant’s most recentlycompleted second fiscal quarter.  The numberof shares outstanding of the registrant’s common stock as of March 15, 2004 was20,113,562.

 

DOCUMENTS INCORPORATED BYREFERENCE

 

**None.**

 

 

----

 

TABLE OF CONTENTS

 
|      |                                                                                             | **Page** |
|-----------|--------------------------------------------------------------------------------------------------|----------|
|      |                                                                                             |     |
| PART I    | 2                                                                                                |
|      |                                                                                             |     |
| Item 1.   | Business                                                                                         | 2        |
| Item 2.   | Properties                                                                                       | 4        |
| Item 3.   | Legal Proceedings                                                                                | 7        |
| Item  4.  | Submission  of Matters to a Vote of Shareholders                                                 | 7        |
|      |                                                                                             |     |
| PART  II  | 8                                                                                                |
|      |                                                                                             |     |
| Item  5.  | Market  for Common Stock and Related Shareholder Matters                                         | 8        |
| Item 6.   | Selected Financial Data                                                                          | 12       |
| Item  7.  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations      | 14       |
| Item  7A. | Quantitative  and Qualitative Disclosure about Market Risk                                       | 26       |
| Item  8.  | Financial  Statements                                                                            | 27       |
| Item  9.  | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure            | 48       |
|      |                                                                                             |     |
| PART  III | 49                                                                                               |
|      |                                                                                             |     |
| Item  10. | Directors  and Executive Officers of the Registrant                                              | 49       |
| Item  11. | Executive  Compensation                                                                          | 50       |
| Item  12. | Security  Ownership of Certain Beneficial Owners and Management and Related Shareholder  Matters | 52       |
| Item  13. | Certain  Relationships and Related Transactions                                                  | 52       |
| Item  14. | Controls  and Procedures                                                                         | 53       |
|      |                                                                                             |     |
| PART  IV  | 55                                                                                               |
|      |                                                                                             |     |
| Item  15. | Exhibits,  Financial Statement Schedules, and Reports on Form 8-K                                | 55       |

 

i

----

 

**FORWARD-LOOKING STATEMENTS**

 

We make statementsin this Form 10-K that are considered “forward-looking statements” within themeaning of Section 27A of the Securities Act of 1933 and Section 21E of the SecuritiesExchange Act of 1934, which are usually identified by the use of words such as“will,” “anticipates,” “believes,” “estimates,” “expects,” “projects,” “plans,”“intends,” “should” or similar expressions. We intend these forward-lookingstatements to be covered by the safe harbor provisions for forward-lookingstatements contained in the Private Securities Reform Act of 1995 and areincluding this statement for purposes of complying with those safe harborprovisions. These forward-looking statements reflect our current views aboutour plans, strategies and prospects, which are based on the informationcurrently available to us and on assumptions we have made. Although we believethat our plans, intentions and expectations as reflected in or suggested bythose forward-looking statements are reasonable, we can give no assurance thatthe plans, intentions or expectations will be achieved. We have discussed inthis Form 10-K some important risks, uncertainties and contingencies whichcould cause our actual results, performance or achievements to be materiallydifferent from the forward-looking statements we make in this document.

 

We assume noobligation to update publicly any forward-looking statements, whether as aresult of new information, future events or otherwise. In evaluatingforward-looking statements, you should consider these risks and uncertainties,together with the other risks described from time to time in our reports anddocuments filed with the SEC, and you should not place undue reliance on thosestatements.

 

1

----

 

**PART I**

 

**ITEM1. BUSINESS**

 

**Overview**

 

Dividend CapitalTrust Inc. (collectively with its consolidated subsidiaries and partnerships,“Dividend Capital” or the “Company”) was formed as a Maryland corporation inApril 2002 in order to invest in commercial real estate properties, consistingprimarily of high-quality, generic distribution warehouses and light industrialproperties net leased to creditworthy corporate tenants. The Company hasqualified as a real estate investment trust (“REIT”) for federal tax purposescommencing with its taxable year ended December 31, 2003.  The Company is structured as an umbrellapartnership REIT (“UPREIT”) under which substantially all of the Company’scurrent and future business is and will be conducted through a majority ownedsubsidiary, Dividend Capital Operating Partnership LP (the “Partnership”), aDelaware limited partnership.  As usedherein, “Dividend Capital,” “we” and the “Company” refers to Dividend CapitalTrust Inc. and Dividend Capital Operating Partnership LP, collectively, exceptwhere the context otherwise requires.

 

Dividend CapitalTrust Inc. is the general partner of the Partnership and as of December 31,2003, held a 99.9% interest in the Partnership. In addition, Dividend CapitalAdvisors LLC (the “Advisor”) held a 0.1% limited partnership interest in thePartnership as of December 31, 2003. Subject to certain restrictions, the limited partners may require thePartnership to redeem some or all of their operating partnership units for theCompany’s common shares or, at the option of the Partnership, for cash.  The rights of the limited partners arelimited and do not include the ability to replace the general partner or toapprove the sale, purchase or refinancing of the Partnership’s assets.  Due to the Company’s control of thePartnership through its general partner and limited partner interests, thePartnership is consolidated with the Company and the limited partnershipinterest not held by the Company is reflected as a minority interest in theaccompanying consolidated financial statements.

 

The Company’s dayto day activities are managed by the Advisor, an affiliate of the Company,under the terms and conditions of an advisory agreement.  The Advisor is beneficially owned by threeof our directors and certain officers. In addition, under the terms of a dealer manager agreement, DividendCapital Securities LLC (the “Dealer Manager”) serves as the dealer manager ofthe Company’s current public offering. The Dealer Manager is also beneficially owned by three of our directors.

 

Currently, thereare no employees of the Company.  Allmanagement and administrative personnel responsible for conducting theCompany’s business are currently employed by the Advisor and the DealerManager.  Currently, the Advisor and itsaffiliates have over 40 full-time employees engaged in business activities forthe Company.

 

**CorporateObjectives**

 

The Company’s corporate objectives are:

 

•                                          Topay consistent quarterly cash distributions to our investors and to increaseour distributions over time;

 

•                                          Tomanage risk in order to preserve, protect and return our investors’ capitalcontributions;

 

•                                          Torealize capital appreciation upon our ultimate sale of our properties; and

 

•                                          Toultimately list our common stock on a national securities exchange or anover-the counter market, complete a sale or merger of Dividend Capital Trust ina transaction which provides our investors with securities of a publicly tradedcompany or sell substantially all of our properties, for cash or otherconsideration; if we do not complete such a transaction or obtain such listingof the shares by February 2013, our articles of incorporation requires us tobegin selling our properties and other assets and distribute the net proceedsto our investors.

 

2

----

 

The Company intends to achieve these objectivesthrough a disciplined approach of building a nationwide portfolio of industrialreal estate consisting primarily of high quality, generic distributionwarehouses and light industrial buildings that are primarily net leased tocreditworthy corporate tenants.

 

**InvestmentStrategy**

 

Dividend CapitalTrust has developed and is currently implementing a comprehensive investmentstrategy. The four principal components are: 1) Target Markets; 2) BulkDistribution and Light Industrial Facilities; 3) Portfolio Diversification; and4) Credit Worthy National, Regional and Local Tenants.

 

*TargetMarkets*

 

•                                          Majorports of entry: air, truck or seaport related. Target markets with thesecharacteristics presently include Los Angeles, Northern New Jersey, Miami,Houston and Memphis;

 

•                                          Strategicallylocated, regional distribution markets with excellent interstate highwayconnections. Target markets with these characteristics presently includeAtlanta, Indianapolis, Columbus, St. Louis, and Dallas; and

 

•                                          Marketswith a large population base within a one thousand mile ring. Target marketswith these characteristics presently include Chicago, Cincinnati, andNashville.

 

The Companyintends to focus primarily on the top 20% of US markets exhibiting thesecharacteristics. Within these markets, certain submarkets will be targetedbased on a number of factors including submarket size and depth, interstatehighway access and potential for rental rate growth.

 

*BulkDistribution and Light Industrial Facilities*

 

Within theindustrial real estate sector, bulk distribution and light industrial buildingshave been selected for their cash flow characteristics including stability, lowturnover costs, re-leasability due to their generic design, and liquidity giveninstitutional demand for these types of industrial buildings. Although thecharacteristics of individual acquisitions may vary, typical physicalcharacteristics are summarized below.

 
|                        |   | **Bulk  Distribution** |   | **Light  Industrial**       |   |
|-----------------------------|--------|------------------------|--------|-----------------------------|--------|
| Building size (square feet) |   | 150,000 to 1 million   |   | 75,000 to 150,000           |   |
| Clear height                |   | 24' to 36'             |   | 18' to 26'                  |   |
| Loading                     |   | Dock high              |   | Dock high                   |   |
| Truck court depth (feet)    |   | 90 - 200               |   | 90 - 120                    |   |
| Building depth (feet)       |   | 200 - 600              |   | 90 - 200                    |   |
| Percentage office space     |   | 2% - 10%               |   | 10% - 25%                   |   |
| Primary use                 |   | Distribution           |   | Distribution/Light Assembly |   |

 

*PortfolioDiversification*

 

The Company’sobjective is to build a high quality, diversified portfolio. While there can beno assurance that the Company can achieve this objective in the desired timeframe or at all, the Company’s management is working to diversify its portfolioas follows:

 

•                                          *Markets*:Presently approximately 25 markets are targeted

 

•                                          *Tenants*:No tenant or company should account for more than approximately five percent ofnet rental income within three years

 

•                                          *IndustryExposure*: Broad based exposure to multiple industries within thetenant base

 

•                                          *LeaseRollovers*: Within three years, no more than approximately 17% oftenant leases rolling or expiring in any calendar year

 

3

----

 

*CreditworthyNational, Regional and Local Tenants*

 

The Company’sobjective is to acquire buildings primarily leased to creditworthy companieswhich operate nationally, regionally, or locally. Listed below are our largesttenants as of December 31, 2003.

 
|       |   |                  |   |                                  |   |      |   | **% of**      |   | **Annual**   |      | **% of**      |   | **Lease**      |      |
|------------|--------|-----------------------|--------|---------------------------------------|--------|-----------|--------|---------------|--------|--------------|-----------|---------------|--------|----------------|-----------|
| **Market** |   | **Building**          |   | **Tenant**                            |   | **SF**    |   | **Portfolio** |   | **Rents(2)** |      | **Portfolio** |   | **Expiration** |      |
| Nashville  |   | Bridgestone/Firestone |   | Bridgestone/Firestone                 |   | 756,030   |   | 20.67         | %      | $            | 1,924,000 |          | 16.71  | %              | 5/31/2013 |   |
| Dallas     |   | Pinnacle C            |   | International Truck & Engine Corp |   | 280,000   |   | 7.66          | %      | 882,000      |      | 7.92          | %      | 12/18/2012     |      |
| Chicago    |   | Mallard Lake          |   | Iron Mountain                         |   | 222,122   |   | 6.07          | %      | 950,000      |      | 7.64          | %      | 5/17/2014      |      |
| Houston    |   | West by Northwest     |   | Inventec (1)                          |   | 189,467   |   | 5.18          | %      | 622,000      |      | 5.16          | %      | 4/30/2007      |      |
|       |   |                  |   | Total                                 |   | 1,447,619 |   | 39.6          | %      | $            | 4,378,000 |          | 37.2   | %              |      |   |

 

----

(1)          Rent concessions stop inMay 2004, when the annual rent increases to $704,817

(2)          These represent amountsto be paid which could be different than revenue recognized for GAAP.

 

**WebsiteAddress**

 

Access to copiesof our filings with the SEC may be obtained free of charge from our website atwww.dividendcapital.com.

 

**ITEM 2.PROPERTIES**

 

Dividend Capital has invested in real estate assetsthat are primarily generic bulk industrial distribution properties.  As of December 31, 2003, Dividend Capitalhad direct ownership of 13 properties located in eight markets throughout theUnited States.  The information in thefollowing table is as of December 31, 2003 for the properties beneficiallyowned by Dividend Capital and its consolidated subsidiaries.

 
| **Market**   |   | **Property**          |   | **Date  Acquired** |   | **Year  Built** |   | **Number  of  Buildings** |   | **Approximate  Total  Acquisition  Cost(1)** |        | **Debt**   |   | **Gross  Leasable  Area** |   | **Occupancy(2)** |   |
|--------------|--------|-----------------------|--------|--------------------|--------|-----------------|--------|---------------------------|--------|----------------------------------------------|-------------|------------|--------|---------------------------|--------|------------------|--------|
| Nashville    |   | Bridgestone/Firestone |   | 6/9/03             |   | 2003            |   | 1                         |   | $                                            | 24,500,000  |       | $      | —                    |   | 756,000          |   | 100 | % |
| Memphis      |   | Chickasaw             |   | 7/22/03            |   | 2000            |   | 2                         |   | 14,800,000                                   |        | —     |   | 392,000                   |   | 94               | %      |
| Los Angeles  |   | Rancho                |   | 10/16/03           |   | 2002            |   | 1                         |   | 10,400,000                                   |        | —     |   | 201,493                   |   | 100              | %      |
| Chicago      |   | Mallard Lake          |   | 10/29/03           |   | 1999            |   | 1                         |   | 11,400,000                                   |        | 1,000,000  |   | 222,122                   |   | 100              | %      |
| Houston      |   | West by Northwest     |   | 10/30/03           |   | 1997            |   | 1                         |   | 8,600,000                                    |        | —     |   | 189,467                   |   | 100              | %      |
| Cincinnati   |   | Park West             |   | 12/15/03           |   | 2001  and  2003 |   | 3                         |   | 25,100,000                                   |        | 15,860,517 |   | 470,957                   |   | 100              | %      |
| Dallas       |   | Pinnacle              |   | 12/15/03           |   | 2002            |   | 2                         |   | 29,300,000                                   |        | 17,778,723 |   | 730,000                   |   | 89               | %      |
| Dallas       |   | DFW                   |   | 12/15/03           |   | 1999            |   | 1                         |   | 11,400,000                                   |        | 6,860,761  |   | 252,776                   |   | 80               | %      |
| Indianapolis |   | Plainfield I          |   | 12/22/03           |   | 2000            |   | 1                         |   | 15,700,000                                   |        | —     |   | 442,129                   |   | 68               | %      |
|         |   |                  |   |               |   |            |   |                      |   |                                         |        |       |   |                      |   |             |   |
| Total        |   |                  |   |               |   |            |   | 13                        |   | $                                            | 151,200,000 |       | $      | 41,500,000                |   | 3,656,944        |   | 92 | %(2) |

 

----

(1) These costs include the acquisition fees paid to the Advisor.

(2) As of December 31 2003, all vacant space was under master leaseswhereby the sellers are obligated to pay monthly rent until the earlier of theexpiration of the master lease agreement or commencement of rent from a newtenant.  For financial reportingpurposes, rental payments under master lease agreements are reflected as areduction of the basis of the underlying property rather than rental revenue.

 

4

----

 

**Descriptionof Properties**

 

*Bridgestone/FirestoneDistribution Center—Nashville, TN*

 

TheBridgestone/Firestone facility is a cross-docked, single-tenant distributionfacility with 756,000 square feet leased to Bridgestone/Firestone NorthAmerican Tire, LLC. Located off I-40 just east of State Highway 109 in Lebanon,Tennessee, this east Nashville submarket, together with the Southeastsubmarket, are the primary locations of Nashville’s class A distributionfacilities. Prior to the end of the seventh year of the initial lease term,Bridgestone/Firestone North American Tire, LLC has the option to require theCompany to build out the additional 250,000 square feet of expansion space.Upon completion of the build out, the tenant would be required to lease theentire facility for at least five additional years from the expansion spacelease commencement date. The total cost of the Nashville facility (including anacquisition fee of $705,000 paid to the Advisor) was approximately $24.5million.

 

*ChickasawDistribution Center—Memphis, TN*

 

The two Chickasawbuildings, completed in 2000, are part of a master planned park calledChickasaw Distribution Center located in Memphis, Tennessee. The Chickasawfacilities are located in the southeastern Memphis market, two minutes from theMemphis International Airport, five minutes from US 78, 14 minutes from I-55and seven minutes from I-240. These buildings total 392,000 square feet. Thecost of the facilities was approximately $14.8 million (including anacquisition fee of $525,000 paid to the Advisor).

 

*RanchoTechnology Park—Rancho Cucamonga, CA*

 

The RanchoTechnology Park facility is a 201,493 square foot distribution facilityconstructed in 2002. This building is located two and a half miles from theOntario International Airport and two miles from I-10 with easy access to I-15.Rancho Cucamonga is part of the Inland Empire, a major distribution spacesub-market of Los Angeles. The cost of the Rancho Facility (including anacquisition fee of $297,795 payable to the Advisor) was approximately $10.4million. These costs include certain escrow amounts related to the newlynegotiated lease with Ozburn-Hessey Logistics, LLC totaling approximately$525,000, which primarily represent amounts to be paid for tenant finish andleasing commissions.

 

*MallardLake Distribution Center—Chicago, IL*

 

Mallard LakeDistribution Center is a 222,122 square foot, rear load distribution facilitylocated in a master planned park in Hanover Park, Illinois, a sub-market ofChicago. Hanover Park is part of the Dupage County sub-market, a majorsubmarket of Chicago located seven miles form O’Hare Airport. Completed in2002, the facility is fully leased to Iron Mountain Inc., an internationalinformation storage, management and protection services company. The total costof Mallard Lake (including an acquisition fee of approximately $330,000 payableto the Advisor) was approximately $11.4 million.

 

*West byNorthwest Business Center—Houston, TX*

 

West by NorthwestBusiness Center is a 189,467 square foot distribution facility located inHouston’s northwest submarket and was developed in 1997. West by Northwest islocated adjacent to the intersection of the Houston Toll Road 8 and highway 290with Hempstead Highway to the south. The total cost of West by Northwest(including an acquisition fee of approximately $248,000 paid to the Advisor)was approximately $8.6 million of which $290,000 is being held in escrow forfuture tenant improvements.

 

*ParkWest Distribution Facilities—Cincinnati, OH*

 

The Park WestFacilities consists of three rear-loading distribution facilities developed in2001 and 2003 totaling 470,957 rentable square feet. Park West, a masterplanned distribution park, is located in Hebron, Kentucky, a submarket ofCincinnati, which is approximately six minutes from the Cincinnati NorthernKentucky Airport. The total cost of Park West (including an acquisition fee ofapproximately $727,500 paid to the Advisor) was approximately $25.1 million.

 

5

----

 

*PinnacleIndustrial Center—Dallas, TX*

 

The PinnacleDistribution Facilities are comprised of two buildings developed in 2002, totalapproximately 730,000 square feet and are located in Dallas, Texas. Pinnacle islocated on I-30, with close proximity to I-20 and downtown Dallas. The totalcost of Pinnacle (including an acquisition fee of approximately $849,000payable to our Advisor) was approximately $29.3 million.

 

*DFWTrade Center—Dallas TX*

 

The DFWDistribution Facility (“DFW”) is a 253,000 square foot distribution facilitydeveloped in 1999 which is located in the Las Colinas Airport submarket ofDallas, Texas. The building is located five miles north of DFW Airport on StateHighway 121 and has easy access to all quadrants of the metroplex. The totalcost of DFW (including an acquisition fee of approximately $330,000 paid to theAdvisor) was approximately $11.4 million.

 

*PlainfieldDistribution Center—Indianapolis, TN*

 

The Company purchased a 442,129 square footdistribution facility developed in 2000 located in Plainfield, Indiana, asubmarket of Indianapolis located on I-70 less than four miles fromIndianapolis International Airport. The total cost of Plainfield (including anacquisition fee of approximately $453,210 paid to the Advisor) wasapproximately $15.7 million.

 

**LeaseExpirations**

 

The followingtable sets forth a schedule of expiring leases by square footage and byannualized rental revenue:

 
| **Year**   |   | **Square  Feet(1)  Expiring** |   | **Percent of  Portfolio** |   | **Annual  Rental  Payments of  Expiring Leases** |       | **Percent of  Portfolio** |   |
|------------|--------|-------------------------------|--------|---------------------------|--------|--------------------------------------------------|------------|---------------------------|--------|
| 2004       |   | —                        |   | —                    |   | $                                                | —     |                      | — |   |
| 2005       |   | 51,113                        |   | 1.4                       | %      | 207,212                                          |       | 1.9                       | %      |
| 2006       |   | 323,117                       |   | 8.8                       | %      | 1,223,285                                        |       | 11.0                      | %      |
| 2007       |   | 539,832                       |   | 14.8                      | %      | 1,537,744                                        |       | 13.8                      | %      |
| 2008       |   | 595,482                       |   | 16.3                      | %      | 2,243,363                                        |       | 20.1                      | %      |
| Thereafter |   | 1,854,572                     |   | 50.7                      | %      | 5,925,816                                        |       | 53.2                      | %      |
| Total      |   | 3,364,116                     |   | 92.0                      | %      | $                                                | 11,137,220 |                      | 100.0  | % |

 

----

(1) Excludes master leaseagreements covering 292,864 square feet of space. The term of these masterlease agreements end the earlier of 12 months or rent commencement of a newtenant.

 

6

----

 

**ITEM3. LEGAL PROCEEDINGS**

 

From time to time, Dividend Capital may be party to avariety of legal proceedings arising in the ordinary course of the Company’sbusiness.  The Company is not a party toany material litigation or legal proceedings, or to the best of its knowledge,any threatened litigation or legal proceedings which, in the opinion ofmanagement, individually or in the aggregate, would have a material adverseeffect on its results of operations or financial condition.

 

**ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS**

 

A special meeting of shareholders was held on November21, 2003 at our corporate offices to vote on several amendments to our articlesof incorporation.  Over 60% ofshareholders of record as of October 17, 2003 voted and approved the followingamendments as summarized below:

 

(1)                                  Over90% of the shares voted approved an amendment to our articles of incorporationto:

 

(a) reduce themaximum acquisition fee that may be paid to our Advisor from 3% to 1% and toadd a maximum asset management fee of 0.75% per annum of the undepreciated costof our properties;

 

(b) reduce theamount that the Company may reimburse the Advisor for organizational andoffering expenses from 3% to 2% of the gross proceeds of our public offering;

 

(c) reduce theamount that the Company may pay the Dealer Manager from 2.5% to 2% of the grossproceeds of our public offering, limit the amount of this fee that may bere-allowed by the Dealer Manager to 1.0% and reduce the maximum amount ofup-front selling commissions that the Company may pay the Dealer Manager from7% to 6% of the gross proceeds of our public offering (except that the sellingcommission may remain at up to 7% where the purchaser elects to pay a deferredcommission); and

 

(d) reduce themaximum property management fee that the Company may pay to an affiliate of theexternal advisor from the lesser of 4.5% of our gross revenues or 0.6% of thenet asset value of our properties  tothe lesser of 3% of our gross revenues or 0.6% of the net asset value of ourproperties.

 

(2)                                  Over90% of the shares voted approved an amendment to our articles of incorporationto calculate our 50% leverage restriction based on our gross assets instead ofbased on the value of our properties, and to eliminate the 75% leveragerestriction on any individual property. “Gross assets” is the total assets of the Company, at cost, beforededucting depreciation or other non-cash reserves, calculated in accordancewith GAAP, less those assets required by GAAP to be included in the totalassets of the Company which the Company does not legally own.

 

(3)                                  Over90% of the shares voted approved an amendment to our articles of incorporationto permit the Investment Committee of our Board, consisting of a majority ofindependent directors, to approve any single property acquisition transactionwith a purchase price of up to $25 million.

 

The changes in the upfront fees paid to the Advisorand its affiliates occurred in November 2003 upon receiving gross proceeds of$100 million from our public offering. The change in the amount paid to the Advisor for acquisition fees andfor the commencement of the asset management fees will occur upon theacquisition of $170 million of properties.

 

7

----

 

**PART II**

 

**ITEM 5. MARKET FOR COMMON STOCK AND RELATED SHAREHOLDERMATTERS**

 

**MarketInformation**

 

There is no established public trading market for theCompany’s common stock.  Based on theCompany’s current public offering, the estimated value of the common stock is$10 per share. As of March 15, 2004, there were approximately 5,700shareholders of record.

 

In order for NASD members and their associated personsto have participated in the offering and sale of shares of common stockpursuant to our public offering or to participate in any future offering of ourshares, we are required pursuant to NASD Rule 2710(c)(6) to disclose in eachannual report distributed to stockholders a per share estimated value of theshares, the method by which it was developed and the date the data used todevelop the estimated value. In addition, our Advisor must prepare annualstatements of estimated share values to assist fiduciaries of retirement planssubject to the annual reporting requirements of ERISA in the preparation oftheir reports relating to an investment in our shares.  For these purposes, the estimated value ofthe shares shall be deemed to be $10 per share as of December 31, 2003.  The basis for this valuation is the factthat we are conducting a public offering of our shares at the price of $10 pershare.  However, there is no significantpublic trading market for the shares at this time, and there can be noassurance that stockholders could receive $10 per share if such a market didexist and they sold their shares or that they will be able to receive suchamount for their shares in the future. Moreover, we have not performed an evaluation of our properties; assuch, this valuation is not necessarily based upon the value of the properties,nor does it represent the amount stockholders would receive if our propertieswere sold and the proceeds distributed to our stockholders in a liquidation,which amount would most likely be less than $10 per share, because at the timewe were purchasing our properties, the amount of funds available for investmentin properties was reduced by approximately 9.1% of offering proceeds raised,which were used to pay selling commissions and dealer manager fees,organization and offering costs and acquisition and advisory fees and expenses,as described in more detail in the notes to our consolidated financialstatements included in this report.  Asa result, it would be expected that, in the absence of other factors affectingproperty values, our aggregate net asset value would be significantly less thanthe proceeds of our offerings and may not be the best indicator of the value ofshares purchased as a long term income producing investment.  Upon conclusion of the initial publicoffering, we intend to conduct an additional public offering of shares.  Our board of directors will determine thepublic offering price of our shares of common stock in that offering, which mayor may not be the same as the public offering price of our current publicoffering.

 

On April 15, 2002, the Company filed an S-11Registration Statement (the “Registration Statement”) with the Securities andExchange Commission covering a public offering of its common stock.  The Registration Statement was declaredeffective on July 17, 2002 and the Company received approval of its offering inall 50 states in December 2002.  Thecommon stock is being offered at a price of $10 per share on a 200,000 shareminimum, 25,000,000 share maximum, best-efforts basis.  The Registration Statement also covers up to4,000,000 shares available pursuant to the Company’s distribution reinvestmentplan and up to 1,000,000 shares issuable upon the exercise of warrants that maybe sold to broker-dealers participating in the offering. Until the Companyreceived subscriptions covering at least 200,000 shares from at least 100 non-affiliatedinvestors, offering proceeds were required to be held in escrow.  The escrow conditions were satisfied onFebruary 10, 2003, at which time 226,567 shares of common stock were issued toinvestors.  As of March 15, 2004,20,113,562 common shares were issued and outstanding.  As disclosed in the prospectus to the Registration Statement (the“Prospectus”), the net proceeds from the sale of these securities aretransferred to the Partnership on a one-for-one basis for limited partnershipunits.

 

In April 2002, the Company sold 200 shares of commonstock to an affiliate of the Advisor at the initial public offering price of$10 per share.  The resale of theseshares is subject to the provisions of Rule 144 promulgated under theSecurities Act of 1933, as amended, which limits the number of shares that maybe sold at any one time and the manner of such resale.  The affiliate of the Advisor has agreed toabstain from voting any shares it now owns or hereafter acquires in any votefor the election of directors or any vote regarding the approval or terminationof any contract with the Advisor or any of its affiliates.

 

8

----

 

The Companyprovides a distribution reinvestment plan and a share redemption plan to facilitateinvestment in the shares and to provide limited liquidity for shareholdersuntil such time as a market for the shares develops.

 

The Company’sdistribution reinvestment program will, subject to certain share ownershiprestrictions, allow shareholders to automatically reinvest distributions bypurchasing additional shares from the Company at an amount, per share, equal tothe purchase price, if shares are not listed on a national securities exchangeor over-the-counter market, less a five percent discount.  As of the date of this filing, the purchaseprice, as determined using the most recent offering price, was $10.00 andtherefore participants of the distribution reinvestment plan are able topurchase shares at $9.50 per share.

 

As long as ourcommon stock is not listed on a national securities exchange or traded on anover-the-counter market, shareholders of Dividend Capital Trust who have heldtheir shares for at least one year may be able to redeem all or any portion oftheir shares in accordance with the procedures outlined in the prospectus toour public offering. At that time, we may, subject to certain conditions andlimitations, redeem the shares presented for redemption for cash to the extentthat we have sufficient funds available to us to fund such redemption. Theamount received from the redemption of shares will be equal to the lesser ofthe price actually paid for the shares or the redemption price which isdependent upon the number of years the shares are held as described in thefollowing table:

 
| **Share Purchase Anniversary** |   | **Redemption  Price Per Share*** |   |
|--------------------------------|--------|----------------------------------|--------|
|                           |   |                             |   |
| Less than 1                    |   | No Redemption Allowed            |   |
| 1                              |   | $                                | 9.25   |   |
| 2                              |   | $                                | 9.50   |   |
| 3                              |   | $                                | 9.75   |   |
| 4                              |   | Purchase Price                   |   |

 

----

**         Subject tochange*

 

The Company expects to fund the redemption price ofany share redemptions with proceeds received from the sale of shares pursuantto the distribution reinvestment plan. The Company’s board of directors may, at its sole discretion, choose touse other sources of funds to redeem shares.

 

**Dividends**

 

The Company has qualified as a REIT for federal taxpurposes commencing with its taxable year ending December 31, 2003.  In order to qualify and remain qualified asa REIT, among other things, the Company is required to distribute at least 90%of its annual taxable income to the Company’s shareholders.

 

The Company’sBoard of Directors announces the following quarter’s annualized dividend beforethe first day of the quarter.  TheCompany will calculate its dividends based upon daily record and dividenddeclaration dates so investors will be eligible to earn dividends immediatelyupon purchasing shares.  The Companyintends to accrue and pay dividends on a quarterly basis. The following tablesets forth the dividends declared by our Board of Directors and the dividendsthat have been paid to date:

 

| **Quarter**       |   | **Amount  Declared(1)** |   | **Date Paid** |              |
|-------------------|--------|-------------------------|--------|---------------|-------------------|
| 2nd  Quarter-2003 |   | $                       | 0.1558 |          | July 15, 2003     |   |
| 3rd  Quarter-2003 |   | $                       | 0.1575 |          | October 15, 2003  |   |
| 4th  Quarter-2003 |   | $                       | 0.1575 |          | January 15, 2004  |   |
| 1st  Quarter-2004 |   | $                       | 0.1591 |          | April 15, 2004(2) |   |

 

----

(1)          Assumes share was ownedfor the entire quarter

(2)          Anticipated payment date

 

9

----

 

Distributions to shareholders are characterized forfederal income tax purposes as ordinary income, capital gains, non-taxablereturn of capital or a combination of the three.  Distributions that exceed the Company’s current and accumulatedearning and profits (calculated for tax purposes) constitute a return ofcapital for tax purposes rather than a dividend and reduce the shareholders’basis in the common shares.  To theextent that a distribution exceeds both current and accumulated earnings andprofits and the shareholders’ basis in the common shares, it will generally betreated as a gain from the sale or exchange of that shareholder’s commonshares.   The Company annually notifiesshareholders of the taxability of distributions paid during the precedingyear.  The following summarizes thetaxability of distributions on common shares for the year ended December 31, 2003:

 
| Per Common  Share: |   |   |   |
|--------------------|--------|--------|--------|
| Ordinary Income    |   | 39.8   | %      |
| Capital Gains      |   | 0.0    | %      |
| Return of  Capital |   | 60.2   | %      |
| Total              |   | 100.0  | %      |

 

**PartnershipUnits**

 

In April 2002, the Partnership issued to the Company200 general partnership units in exchange for $2,000 representing a 1% generalpartnership interest in the Partnership. Also in April 2002, the Partnershipissued to the Advisor 20,000 limited partnership units in exchange for $200,000representing a 99% limited partnership interest in the Partnership.  During the third quarter of 2002, thePartnership issued Dividend Capital Advisors Group LLC, the parent company ofthe Advisor, special partnership units (the “Special Units”) for totalconsideration of $1,000.

 

Amounts distributable to the holder of the SpecialUnits will depend on operations and the amount of net sales proceeds receivedfrom property dispositions.  In general,after holders of regular partnership interests have, in the aggregate, receivedcumulative distributions equal to their capital contributions plus a 7% pre-taxcumulative non-compounded annual return on their net contributions, the holderof the Special Units and the holders of regular partnership interests willreceive 15% and 85%, respectively, of the net sales proceeds received by thePartnership upon the disposition of the Partnership’s assets.

 

The Special Units will be redeemed by the Partnershipfor cash upon the occurrence of specified events that result in a terminationor non-renewal of the Advisory Agreement. If the Advisory Agreement is terminated by the Company for cause, theredemption price shall be $1.  If theCompany’s shares are listed for public trading or if the Advisory Agreement isterminated upon the occurrence of certain other events, the redemption price ofthe Special Units will be the amount which would have been distributed to theholder of the Special Units in accordance with the partnership agreement of thePartnership out of the net sales proceeds. Net sales proceeds will be determined by the public market prices in theevent of a listing of the Company’s shares or by the net sales proceedsreceived in the event of the disposition of the Company’s properties.  In the case of certain other events, netsales proceeds will be determined by the then fair market value of thePartnership’s assets, as determined by an appraisal, less all of itsliabilities.

 

**EquityCompensation Plans**

 

As of December 31,2003 there were 260,000, 750,000 and 1,000,000 shares available for futureissuance under the Independent Director Option Plan, Employee Option Plan andthe warrant purchase agreement with the Dealer Manager, respectively.   As of December 31, 2003, there were 40,000options issued and outstanding under the Independent Director Stock Option Planand no options outstanding under the Employee Stock Option Plan and there wereno outstanding dealer warrants.

 

**StockOption Plans**

 

The Company has adopted an independent director stockoption plan which it will use in an effort to attract and retain qualifiedindependent directors (the “Independent Director Option Plan”).  The Company will grant non-qualified stockoptions to purchase 10,000 shares to each independent director pursuant to theIndependent Director Option Plan

 

10

----

 

upon the sale of 200,000shares in the Company’s public offering. In addition, the Company intends to issue options to purchase 5,000shares to each independent director then in office on the date of each annualshareholder’s meeting.  A total of300,000 shares are authorized and reserved for issuance under the IndependentDirector Option Plan.  Options may notbe granted under the Independent Director Option Plan at any time when thegrant would cause the total number of options outstanding under the IndependentDirector Option Plan and the Employee Option Plan (defined below) to exceed 10%of the Company’s issued and outstanding shares.  The exercise price for options to be issued under the IndependentDirector Option Plan shall be the greater of (1) $12 per share or (2) the fairmarket value of the shares on the date they are granted.    As of December 31, 2003, there were 40,000options outstanding under the Independent Director Option Plan.

 

The Company has adopted an employee stock option plan(the “Employee Option Plan”).  TheEmployee Option Plan is designed to enable the Company, the Advisor and theProperty Manager to obtain or retain the services of employees (not to includeany person who is a sponsor or affiliate of the Company) considered essentialto the Company’s long-term success and the success of the Advisor and theProperty Manager by offering such employees an opportunity to participate inthe growth of the Company through ownership of the Company’s shares.  The Employee Option Plan will be administeredby the Compensation Committee, which is authorized to grant “non-qualified”stock options (the “Employee Options”) to selected employees of the Advisor andthe Property Manager.  Employee Optionsmay not be granted under the Employee Option Plan at any time when the grantwould cause the total number of options outstanding under the Employee OptionPlan and the Independent Director Option Plan to exceed 10% of the Company’sissued and outstanding shares.  The exerciseprice for the Employee Options shall be the greater of (1) $11 per share or (2)the fair market value of the shares on the date the Employee Option isgranted.  A total of 750,000 shares areauthorized and reserved for issuance under the Employee Option Plan.  The Compensation Committee shall set theterm of the Employee Options at its discretion, which shall not exceed tenyears.  The Compensation Committee shallset the period during which the right to exercise an Employee Option vests.  No Employee Option may be issued orexercised, however, if such issuance or exercise would jeopardize the Company’sstatus as a REIT under the Internal Revenue Code or otherwise violate theownership and transfer restrictions imposed under the Company’s articles ofincorporation.  In addition, no EmployeeOption may be sold, pledged, assigned or transferred by an employee in anymanner other than by will or the laws of descent or distribution.  As of December 31, 2003, there were nooptions outstanding under the Employee Option Plan.

 

**StockWarrants**

 

The Company will issue to the Dealer Manager onesoliciting dealer warrant for $.001 for every 25 shares sold during the periodof the Company’s public offering subject to a maximum of 1,000,000 solicitingdealer warrants.  These warrants, aswell as the shares issuable upon their exercise, have been registered inconnection with the Company’s public offering. The Dealer Manager may retain or re-allow these warrants tobroker-dealers participating in the offering, unless such issuance ofsoliciting dealer warrants is prohibited by either federal or state securitieslaws.  The holder of a soliciting dealerwarrant will be entitled to purchase one share of common stock from the Companyat a price of $12 per share during the period beginning on July 17, 2003 andending on July 16, 2007.  Subject tocertain exceptions, a soliciting dealer warrant may not be transferred,assigned, pledged or hypothecated for a period of one year following theeffective date of the Company’s public offering.  Exercise of the soliciting dealer warrants is governed by theterms and conditions detailed in the warrant purchase agreement.  As of December 31, 2003, no warrants hadbeen issued.

 

11

----

 

**ITEM6. SELECTED FINANCIAL DATA**

 

The following table set forth selected financial datarelating to the historical financial condition and results of operations of theCompany for periods ended 2003 and 2002. Certain amounts presented for theperiod ended 2002 have be reclassified to conform with the current yearpresentation.  The financial data in thetable is qualified in its entirety by, and should be read in conjunction with,“Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations” and the Company’s Consolidated Financial Statements andrelated notes in Item 8.

 
|                                                               |   | **Year ended  December 31,  2003** |      | **For the  Period  From Inception  (April 12, 2002)  Through  December 31,  2002(1)**  |   |
|--------------------------------------------------------------------|--------|------------------------------------|-----------|----------------------------------------------------------------------------------------|--------|
|                                                               |   |                               |      |                                                                                   |   |
| **Operating Data:**                                                |   |                               |      |                                                                                   |   |
| Rental revenue                                                     |   | $                                  | 2,289,074 |                                                                                   | $      | — |   |
| Other real  estate income                                          |   | 356,019                            |      | —                                                                                 |   |
| Total revenue                                                      |   | 2,706,457                          |      | —                                                                                 |   |
| Rental expenses                                                    |   | 366,650                            |      | —                                                                                 |   |
| Depreciation and  amortization                                     |   | 1,195,330                          |      | —                                                                                 |   |
| Interest expense                                                   |   | 385,424                            |      | —                                                                                 |   |
| General and  administrative expenses                               |   | 411,948                            |      | 212,867                                                                                |   |
| Net income  (loss)                                                 |   | 347,105                            |      | (12,712                                                                                | )      |
| Common share  cash distributions declared                          |   | $                                  | 2,451,367 |                                                                                   | $      | — |   |
|                                                               |   |                               |      |                                                                                   |   |
| **Per Share Data:**                                                |   |                               |      |                                                                                   |   |
| Basic earnings  (loss) per common share                            |   | $                                  | 0.09      |                                                                                   | $      | (63.56 | ) |
| Diluted earnings  (loss) per common share                          |   | 0.09                               |      | (63.56                                                                                 | )      |
| Weighted average  common shares outstanding:                       |   |                               |      |                                                                                   |   |
| Basic                                                              |   | 3,987,429                          |      | 200                                                                                    |   |
| Diluted                                                            |   | 4,007,429                          |      | 200                                                                                    |   |
|                                                               |   |                               |      |                                                                                   |   |
|                                                               |   | **Year ended  December 31,  2003** |      | **For the  Period  From Inception  (April 12, 2002)  Through  December 31,  2002 (1)** |   |
| **Other Data:**                                                    |   |                               |      |                                                                                   |   |
| Reconciliation  of net income (loss) to funds from operations (2): |   |                               |      |                                                                                   |   |
| Net income  (loss) attributable to common shares                   |   | $                                  | 347,105   |                                                                                   | $      | (12,712 | ) |
| Add:                                                               |   |                               |      |                                                                                   |   |
| Real estate  related depreciation and amortization                 |   | 1,195,330                          |      | —                                                                                 |   |
| Funds from  operations attributable to common shares               |   | $                                  | 1,542,435 |                                                                                   | $      | (12,712 | ) |
|                                                               |   |                               |      |                                                                                   |   |
| Weighted average  common shares outstanding:                       |   |                               |      |                                                                                   |   |
| Basic                                                              |   | 3,987,429                          |      | 200                                                                                    |   |
| Diluted                                                            |   | 4,007,429                          |      | 200                                                                                    |   |
| Net cash  provided by (used in) operating activities               |   | 1,699,791                          |      | (139,022                                                                               | )      |
| Net cash used in  investing activities                             |   | (149,948,228                       | )         | —                                                                                 |   |
| Net cash  provided by financing activities                         |   | 152,314,027                        |      | 150,077                                                                                |   |

 

12

----

 
|                                       |   | **As of  December 31,** | ** **  |
|--------------------------------------------|--------|-------------------------|-------------|
|                                       |   | **2003**                |        | **2002 (1)** |   |
| **Balance Sheet Data**:                    |   |                    |        |   |   |
| Net investment  in real estate             |   | $                       | 150,633,351 |   | $ | — |   |
| Total assets                               |   | 156,607,536             |        | 751,678 |   |
| Line of credit  and short-term borrowings  |   | 1,000,000               |        | — |   |
| Mortgage note                              |   | 40,500,000              |        | — |   |
| Total  liabilities                         |   | 49,782,191              |        | 761,390 |   |
| Total  shareholders’ equity (deficit) |   | 106,824,345             |        | (10,712 | ) |
| Number of common  shares outstanding       |   | 12,470,400              |        | 200 |   |
|                                            |        |                         |             |  |  |  |  |

 

----

(1)          Certain items in the consolidated financialstatements for prior periods have been reclassified to conform with currentclassifications with no effect on net income or stockholders’ equity.

(2)          We utilize a supplemental earnings measure, funds from operations, orFFO, as defined by the National Association of Real Estate Investment Trusts(“NAREIT”), that is widely used by investors and analysts. While FFO is arelevant and widely used measure of operating performance of real estateinvestment trusts, it does not represent cash flow from operations or netincome as defined by GAAP and it should not be considered as an alternative tothose indicators in evaluating liquidity or operating performance. Further, FFOas disclosed by other real estate investment trusts may not be comparable.

 

We believe that FFO, asdefined by NAREIT, is a meaningful supplemental measure of our operatingperformance because historical cost accounting for real estate assets inaccordance with GAAP implicitly assumes that the value of real estate assetsdiminishes predictably over time, as reflected through depreciation andamortization expenses. However, since real estate values have historicallyrisen or fallen with market and other conditions, many industry investors andanalysts have considered presentation of operating results for real estatecompanies that use historical cost accounting to be insufficient. Thus, NAREITcreated FFO as a supplemental measure of operating performance for real estateinvestment trusts that excludes historical cost depreciation and amortization,among other items, from net income, as defined by GAAP. We believe that the useof FFO, combined with the required GAAP presentations, has been beneficial inimproving the understanding of operating results of real estate investmenttrusts among the investing public and making comparisons of operating resultsamong such companies more meaningful. We consider FFO to be a useful measurefor reviewing our comparative operating and financial performance because, byexcluding gains or losses related to sales of previously depreciated operatingreal estate assets and real estate depreciation and amortization, FFO can helpthe investing public compare the operating performance of a company’s realestate between periods or as compared to other companies.

 

13

----

 

**ITEM7.****     MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following discussion and analysis of financialcondition and results of operations of the Company should be read inconjunction with the audited consolidated financial statements and notesthereto as of December 31, 2003, and for the year then ended.  This report on Form 10-K 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, but are not limitedto, changes in general economic conditions, changes in real estate conditions,changes in interest rates, the amount of equity capital provided by the Company’spublic offering, the availability of debt financing on terms that are favorableto the Company, the ability of the Company to acquire and lease properties onfavorable terms and the ability of tenants to make payments under theirrespective leases.  Readers of thisreport are cautioned to consider these uncertainties in connection with allforward-looking statements.

 

**Overview**

 

Dividend Capitalwas formed as a Maryland corporation in April 2002 and was structured and hassubsequently operated with the intent to qualify as a REIT and to invest incommercial real estate properties, consisting primarily of high-quality,generic distribution warehouses and light industrial properties net leased tocreditworthy corporate tenants.  Inorder to provide capital for these investments, the Company filed theRegistration Statement on April 15, 2002 with the Securities and ExchangeCommission covering a public offering of its common stock.  The offering provides the Company withcapital on a continual basis and as of March 15, 2004, the company had sold20,113,562 shares for gross proceeds of approximately $201 million.  The Company intends to continue raisingsignificant amounts capital through this offering and potential follow onofferings and through the Partnership’s Private Placement more fully describedbelow.

 

A primary focus of the company is to invest in adiversified portfolio of properties, in terms of geography, tenancy andindustry group of our tenants, that will satisfy our investment objectives ofmaximizing cash available for payment of dividends, preserving our capital andrealizing growth in value upon the ultimate sale of our properties.  Management believes that capital willcontinue to flow into institutional real estate and industrial real estate inparticular and continue to foster a competitive environment for the assets theCompany is seeking to acquire. Consequently, the Company, through the activities of the Advisor, hasassembled a team of 12 professionals with over 170 years of aggregate experiencethat are dedicated to the operations and acquisition of properties that meetthese investment criteria.  The abilityof the Advisor to find and acquire these properties at a pace that isconsistent with the capital that is raised through our offerings, PrivatePlacement and financing activities will directly impact to the financialperformance of the Company and the metrics that management uses to evaluate ourperformance including funds from operations available to pay dividends.

 

**Liquidityand Capital Resources**

 

The Company is notaware of any material trends or uncertainties, favorable or unfavorable, otherthan national economic conditions affecting real estate generally, which itanticipates may have a material impact on either capital resources or therevenues or income to be derived from the operation of real estate properties.

 

Management expects that our principal sources ofworking capital and funding for acquisitions and potential capital requirementsfor expansion and renovation of properties will include:

 

•                  Proceeds fromour current or future public offerings of common stock;

•                  Proceeds fromthe Partnership’s Private Placement;

•                  Borrowings underour secured credit facility;

•                  Other forms ofsecured or unsecured financing;

•                  Capital fromco-investment partners; and

•                  Cash flow fromoperations.

 

14

----

 

We believe that our sources of capital, specificallyour cash flow from operations, borrowings available under our credit facilityand our ability to raise capital through our public offering and PrivatePlacement are adequate and will continue to be adequate for us to meet ourliquidity requirements for the foreseeable future.

 

*PublicOffering*

 

On April 15, 2002,the Company filed 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 receivedapproval of its offering in all 50 states in December 2002.  The Company’s common stock is being offeredat a price of $10 per share on a 200,000 share minimum, 25,000,000 sharemaximum, best-efforts basis. The Registration Statement also covers up to4,000,000 shares available pursuant to the Company’s distribution reinvestmentplan and up to 1,000,000 shares issuable upon the exercise of warrants that maybe 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 March 15, 2004, 20,113,562 commonshares were issued and outstanding. As disclosed in the Prospectus, the netproceeds from the sale of these securities were transferred to the Partnershipon a one-for-one basis for limited partnership units. During 2004, the Companywill continue to sell shares under the initial offering, providing capital primarilyfor acquisitions.  The Company may alsocontinue to obtain debt financing or may cause the Partnership to issue limitedpartnership interests to help fund property acquisitions.

 

Pursuant to theAdvisory Agreement, the Advisor is obligated to advance all of the Company’sorganization and offering costs, subject to its right to be reimbursed for suchcosts by the Company in an amount up to 3% of the initial $100 million of grossoffering proceeds and 2% of the gross offering proceeds raised thereafter.  As of December 31, 2003, the Company hadreimbursed the Advisor approximately $3.6 million for offering related costsincurred in connection with the Company’s initial offering and the Advisor hasincurred approximately an additional $8.9 million of offering costs that aresubject to reimbursement if sufficient proceeds are raised.  The Company did not reimburse the Advisorfor offering related costs during 2002 because no shares had been sold during2002.

 

Pursuant to theDealer Manager Agreement, the Company is obligated to pay the Dealer Manager adealer manager fee and commissions up to 2.5% and 7.0%, respectively, of theinitial $100 million of gross offering proceeds raised and up to 2.0% and 6.0%,respectively, thereafter.  As ofDecember 31, 2003, the Company has paid the Dealer Manager a total ofapproximately $11.0.  No payments weremade by the Company to the Dealer Manager in 2002.

 

*PrivatePlacement Memorandum*

 

The Company has developed certain transactionstructures that are designed to provide investors that own real property,either directly or indirectly through a limited liability company or limitedpartnership, with the opportunity to receive limited partnership units in thePartnership (DCX Units) in exchange for their direct or indirect interest insuch real property on a tax-deferred basis. Each of the transaction structuresinvolves an exchange of the property then owned directly or indirectly by theinvestor by its direct owner for a replacement property identified by theCompany in a like-kind exchange under either or both of Sections 1031 and 721of the Internal Revenue Code.

 

The Partnership’s issuance of DCX Units in exchangefor direct or indirect interest in real property may provide certain investorswith the opportunity to complete a real estate transaction and defer theirFederal tax liability on any gain he or she would otherwise recognize on anexchange of such interest directly for shares of the Company’s common stock orcash until such time as the investor redeems his or her DCX Units for shares ofthe Company’s common stock, or at the option of the Company, for cash.  Each DCX Unit is intended to be thesubstantial economic equivalent of one share of the Company’s common stock.

 

The Partnershipwill pay certain up-front fees and reimburse certain related expenses to theAdvisor, Dealer Manager and Dividend Capital Exchange Facilitators LLC (the“Facilitator”) for raising capital through such transactions.  The Advisor is obligated to pay all of theoffering and marketing related costs associated with the private placement;however, the Partnership is obligated to reimburse the Advisor for such costsnot to exceed 2% of the gross proceeds raised through the Private Placement. Inaddition, the Partnership is obligated to pay the Dealer Manager a

 

15

----

 

dealer manager fee of upto 1.5% of gross proceeds raised and the Partnership is obligated to pay acommission to the Dealer Manager of up to 5% of gross proceeds raised throughthe Private Placement. The Dealer Manager may re-allow such commissions to theeffecting broker dealers. The Partnership pays an intellectual propertylicensing fee to the Facilitator of up to 1.5% of gross proceeds raised throughthe Private Placement.

 

During 2003, theCompany raised $2,695,696 through the sale of undivided interests in one of theCompany’s properties referred to as Chickasaw. The Company has leased back such undivided interests and the terms ofthe lease contain repurchase options whereby the Company may buy back theundivided interests by issuing DCX Units. In connection with the sale of theseundivided interests, the Company incurred fees of approximately $260,000payable to the Advisor and its affiliates.

 

*SecuredRevolving Credit Facility*

 

On October 30,2003, we executed an agreement with Bank One, N.A. for a senior secured,revolving credit facility (the “Credit Facility”) for $50 million which may beincreased up to $200 million in total. The Credit Facility bears interest ateither prime or, at the election of the Company, LIBOR plus 1.125% to 1.500%.Depending on the level of leverage on the assets pledged to secure thefacility, and is subject to an annual 25 basis point facility fee.  Monthly debt service payments on thefacility are interest only. As of December 31, 2003, the Company had $1.0million borrowings outstanding under the credit facility.  This facility contains various covenantsincluding financial covenants regarding net worth, interest and fixed chargecoverages and consolidated leverage.  Asof December 31, 2003, the Company was in compliance with all the covenantsunder the facility.

 

On February 10,2004, the Company amended and restated the Credit Facility to facilitate itssyndication among a bank group led by Bank One, NA as administrative agent andlead arranger.  Compass Bank, KeybankNational Association and U.S. Bank National Association also extendedcommitments under the facility.  Thetotal amount available under the credit facility fluctuates based upon the borrowingbase, as defined in the agreement governing the credit facility, generallybased upon the value of the properties pledged to secure the facility.  The amendment increased the commitment underthe facility to $82.5 million with provisions that could increase the facilityto $200 million. In addition, the credit facility’s maturity date was extendedto February 10, 2007.

 

*FixedRate, Non-Recourse Mortgage Loan*

 

 On December 15, 2003, the Company obtained a$40.5 million fixed-rate, non-recourse mortgage from New York Life InsuranceCompany.  The loan bears interest at arate of 5.0% per annum and matures on March 10, 2011.  The fixed monthly loan payments are based upon a thirty yearamortization with a balloon payment due at maturity.  The mortgage, which contains substitution and partial releaserights, has a three year prepayment lockout provision with prepaymentthereafter subject to yield maintenance provisions.  The mortgage is collateralized by six of our properties with anaggregate total cost of approximately $67 million.  The secured debt has various covenants and the Company and thePartnership were in compliance with these covenants at December 31, 2003.

 

**Resultsof Operations**

 

The Companycommenced active operations during the year with the acquisition of 13properties in eight markets throughout the United States for a combinedpurchase price of approximately $145.7 million.  The portfolio of properties makes up approximately 3.7 millionsquare feet of rentable space with an occupancy rate of approximately 92% withthe remaining vacant space master leased by various sellers, which results inthe Company receiving rental payments on 100% of the space.

 

16

----

 

The followingtable provides information with regards to the eight markets in which theCompany has acquired properties.

 
| **Market**   |   | **Number of  Buildings** |   | **Approximate  Acquisition Cost** |        | **Square  Feet** |      | **Percent of  Portfolio** |   | **Number of  Tenants** |   | **Occupancy** |   |
|--------------|--------|--------------------------|--------|-----------------------------------|-------------|------------------|-----------|---------------------------|--------|------------------------|--------|---------------|--------|
| Chicago      |   | 1                        |   | $                                 | 11,400,000  |             | 222,122   |                      | 6.1    | %                      | 1      |          | 100    | % |
| Cincinnati   |   | 3                        |   | 25,100,000                        |        | 470,957          |      | 12.9                      | %      | 7                      |   | 100           | %      |
| Dallas       |   | 3                        |   | 40,700,000                        |        | 982,776          |      | 26.9                      | %      | 8                      |   | 87            | %      |
| Houston      |   | 1                        |   | 8,600,000                         |        | 189,467          |      | 5.2                       | %      | 1                      |   | 100           | %      |
| Indianapolis |   | 1                        |   | 15,700,000                        |        | 442,129          |      | 12.1                      | %      | 2                      |   | 68            | %      |
| Los Angeles  |   | 1                        |   | 10,400,000                        |        | 201,493          |      | 5.5                       | %      | 2                      |   | 100           | %      |
| Memphis      |   | 2                        |   | 14,800,000                        |        | 392,006          |      | 10.7                      | %      | 5                      |   | 94            | %      |
| Nashville    |   | 1                        |   | 24,500,000                        |        | 756,030          |      | 20.7                      | %      | 1                      |   | 100           | %      |
| **Total**    |   | 13                       |   | $                                 | 151,200,000 |             | 3,656,944 |                      | 100.0  | %                      | 27     |          | 92     | % |

 

*General*

 

For the periodsended December 31, 2003 and 2002, net income (loss) was $347,105 and ($12,712),respectively, and net income (loss) per common share was $0.09 and $(63.56),respectively.  These increases are aresult of the rental activities generated from the 13 properties acquiredbetween June and December 2003.

 

*RentalActivity*

 

The period endedDecember 31, 2003, compared to the period ended December 31, 2002, resulted inan increase in rental income and rental expenses of $2.6 million and $0.4million, respectively. This results from the property acquisitions describedabove, whereby the Company began recognizing revenue on the acquired propertiesaccording to the lease terms with the various tenants for each of theseproperties.  In addition, the Companyincurs rental expenses for certain properties where the Company is the primaryobligator versus arrangements where the tenant is responsible for all operatingexpenses.  During 2002, the Company didnot have operating activity as it was still in the development stage.

 

*Depreciationand Amortization*

 

The amountrecorded for depreciation and amortization for the period ended December 31,2003, increased $1.2 million compared to the period ended December 31, 2002.The increase was a result of the property acquisitions described in the tableabove. The Company calculates depreciation on a straight-line basis over theestimated useful lives of the assets.

 

*InterestExpense*

 

In conjunctionwith several acquisitions throughout 2003, the Company used proceeds fromcertain debt financings to acquire the underlying assets. In addition, theCompany retired debt associated with the financing of the property located inNashville, Tennessee and approximately $43,000 of deferred loan costs werecharged to interest expense.  The additionaldebt and the expense related to the deferred loan costs resulted in an increasein interest expense of $385,424 for the period ended December 31, 2003,compared to the period ended December 31, 2002. There was no outstanding debtduring 2002.

 

*Generaland Administrative Expenses*

 

During the periodended December 31, 2003, general and administrative expenses increasedapproximately $200,000 compared to the period ended December 31, 2002. Thisincrease is attributable to the increase in investing activity and because theperiod ended December 31, 2002 only had nine months of activity.  An increase in investing activities resultsin additional board meetings, financial reporting and disclosure requirementsand other activities which result in an increase in general and administrativeexpenses.

 

17

----

 

**CriticalAccounting Policies**

 

*General*

 

The followingdiscussion pertains to accounting policies management believes are most“critical” to the portrayal of the Company’s financial condition and results ofoperations which require 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.  This discussion addresses judgments known to managementpertaining to trends, events or uncertainties known which were taken intoconsideration upon the application of those policies and the likelihood thatmaterially different amounts would be reported upon taking into considerationdifferent conditions and assumptions.

 

*Impairmentof Long-Lived Assets*

 

Long-lived assetsheld and used are carried at cost and evaluated for impairment in accordancewith Statement of Financial Accounting Standards (SFAS) No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 providesthat such evaluation should be performed when events or changes incircumstances indicate such an evaluation is warranted such as the point atwhich the Company deems the long-lived asset to be held for sale, downturns inthe economy, etc.  Impairment oflong-lived assets is considered a “critical accounting estimate” because theevaluation of impairment and the determination of fair values involve a numberof management assumptions relating to future economic events that couldmaterially affect the determination of the ultimate value, and therefore, thecarrying amounts of the Company’s real estate. Such assumptions include, but are not limited to, projecting vacancyrates, rental rates, property operating expenses, capital expenditures and debtfinancing rates, among other things. The capitalization rate is also a significant driving factor indetermining the property valuation which requires management’s judgment offactors such as market knowledge, historical experience, length of leases,tenant financial strength, economy, demographics, environment, propertylocation, visibility, age, physical condition and investor return requirements,among other things.  All of theaforementioned factors are taken as a whole by management in determining thevaluation of investment property.  Thevaluation is sensitive to the actual results of any of these uncertain factors,either individually or taken as a whole. Should the actual results differ from management’s judgment, thevaluation could be negatively affected.

 

*Valuationand Allocation of Real Estate Acquisitions*

 

Upon acquisition,the purchase price of a property and other costs associated with theacquisition such as the acquisition fee paid to the Advisor are capitalized andallocated to land, building, land improvements, tenant improvements and otherintangible assets and associated liabilities as required by Statement ofFinancial Accounting Standards (“SFAS”) No. 141 “Business Combinations.”  The allocation to land, building, landimprovements and tenant improvements will be based on management’s estimate ofits fair value based on all available information.  The allocation to intangible lease assets, as required by SFASNo. 141, represents the value associated with the in-place leases, includingleasing commissions, legal and other related costs.  Also, SFAS No. 141 requires the creation of an intangible assetor liability resulting from in-place leases being above or below the marketrental rates on the date of the acquisition. This asset or liability will be amortized over the life of the remainingin-place leases as an adjustment to revenue. Valuation and allocation of real estate acquisitions is considered acritical accounting policy because the determination of the value andallocation of the cost of a real estate acquisition involves a number ofmanagement’s assumptions relating to the ability to lease vacant space, marketrental rates, term of new leases, property operating expenses, leasing commissions,among other things.  All of theaforementioned factors will be taken as a whole by management in determiningthe valuation and allocation of the costs of real estate acquisitions.  The valuation and allocation is sensitive tothe actual results of any of these uncertain factors, either individually ortaken as a whole.  Should the actualresults differ from management’s judgment, the valuation and allocation couldbe negatively affected and may result in a negative impact as to the amount ofdepreciation and amortization that should have been recorded.

 

*Valuationof Accounts and Rent Receivable*

 

Periodically,management will assess the collectability of accounts and rent receivablebalances in order to determine if an adjustment to the value of these balancesis necessary.  Management will take intoconsideration certain

 

18

----

 

factors that requirejudgments to be made as to the collectability of receivables.  Collectability factors taken intoconsideration will be the amounts outstanding, payment history and financialstrength of the tenant, which taken as a whole, determines the valuation.

 

*REITCompliance*

 

We will elect to be taxed as a real estate investmenttrust under Sections 856 through 860 of the Internal Revenue Code inconjunction with the filing of our 2003 federal tax return. In order to qualifyas a real estate investment trust, we must derive at least 95% of our grossincome in any year from qualifying sources. In addition, we must pay dividendsto stockholders aggregating annually at least 90% of our real estate investmenttrust taxable income (determined without regard to the dividends paid deductionand by excluding capital gains) and must satisfy specified asset tests on aquarterly basis. It is our current intention to adhere to these requirementsand maintain our REIT status. As a REIT, we generally will not be subject tocorporate level federal income tax on net income that we distribute currentlyto our stockholders. As such, no provision for federal income taxes has beenincluded in the accompanying consolidated financial statements. As a REIT, westill may be subject to certain state, local and foreign taxes on our incomeand property and to federal income and excise taxes on our undistributedtaxable income. In addition, we will be required to pay federal and stateincome tax on the net taxable income, if any, from the activities conductedthrough our taxable REIT subsidiary.

 

*NewAccounting Principles*

 

In November 2002, the FASB issued Interpretation No.45,*Guarantor’s Accounting and Disclosure Requirements for Guarantees, IncludingIndirect Guarantees of Indebtedness of Others* (“FIN 45”). FIN 45requires disclosure of off-balance sheet transactions, arrangements,obligations, guarantees or other relationships with unconsolidated entities orother persons that have, or are reasonably likely to have, a material effect onits financial condition, revenues or expenses, results of operations,liquidity, capital expenditures or capital resources.  FIN 45 did not have a material impact on the Company’s financialposition, results of operation or cash flow.

 

In December 2002, the FASB issued SFAS No. 148“Accounting for Stock-Based Compensation - Transition and Disclosure, anamendment of FASB Statement No. 123.” The Company adopted SFAS No. 148 effective January 1, 2003 and hasaccounted for the 40,000 options issued under the Independent Director OptionPlan in accordance with SFAS No. 148. The adoption of SFAS No. 148 did not have a material impact on theCompany’s financial position, results of operations or cash flows.

 

In January 2003,the FASB issued Interpretation No. 46,*Consolidation of Variable Interest Entities*(“FIN 46”). FIN 46 requires a variable interest entity to be consolidated by acompany if that company is subject to a majority of the risk of loss from thevariable interest entity’s activities or entitled to receive a majority of theentity’s residual returns or both. FIN 46 requires disclosures about variableinterest entities that a company is not required to consolidate, but in whichit has a significant variable interest. The consolidation requirements apply toexisting public entities as of March 31, 2004. The Company does not believethat any of its consolidated or unconsolidated joint ventures are variableinterest entities under the provisions of FIN 46.

 

In April 2003, theFASB issued SFAS No. 149,*Amendment of Statement No. 133 on DerivativeInstruments and Hedging Activities* (“SFAS 149”). This Statementamends and clarifies financial accounting and reporting for derivativeinstruments, including certain derivative instruments embedded in othercontracts (collectively referred to as derivatives) and for hedging activitiesunder FASB Statement No. 133,*Accounting for Derivative Instruments and HedgingActivities*. The Company adopted the requirements of SFAS 149 in thethird quarter of 2003, and it did not impact its financial position, results ofoperations or cash flows.

 

In May 2003, theFASB issued SFAS No. 150,*Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity* (“SFAS 150”)*.*This Statement establishes standards for how an issuer classifies and measurescertain financial instruments with characteristics of both liabilities andequity. It requires that an issuer classify a financial instrument that iswithin its scope as a liability (or an asset in some circumstances).  The Company adopted the requirements of SFAS150 in the third quarter of 2003 and there was no impact on the Company’sfinancial position, results of operations or cash flows.

 

19

----

 

**BusinessRisks**

 

**GeneralReal Estate Risks**

 

We will be subjectto risks generally incident to the ownership of real estate, including, but notlimited to:

 

•                                          Changesin general economic or local conditions;

 

•                                          Changesin supply of or demand for similar or competing properties in an area;

 

•                                          Bankruptcies,financial difficulties or lease defaults by our tenants;

 

•                                          Changesin interest rates and availability of permanent mortgage funds that may renderthe sale of a property difficult or unattractive or otherwise reduce thereturns to shareholders;

 

•                                          Changesin tax, real estate, environmental and zoning laws;

 

•                                          Changesin the cost or availability of insurance, including coverage for mold orasbestos;

 

•                                          Periodsof high interest rates and tight money supply;

 

•                                          Tenantturnover; and

 

•                                          Generaloverbuilding or excess supply in the market area.

 

For these andother reasons, we cannot assure investors that we will be profitable or that wewill realize growth in the value of our real estate properties.

 

***A property that incurs a vacancy could be difficult to sellor re-lease.***

 

A property mayincur a vacancy either by the continued default of a tenant under its lease orthe expiration of one of our leases. Certain of our properties may bespecifically suited to the particular needs of a tenant. We may have difficultyobtaining a new tenant for any vacant space we have in our properties. If thevacancy continues for a long period of time, we may suffer reduced revenuesresulting in less cash dividends to be distributed to shareholders. Inaddition, the resale value of a property could be diminished because the marketvalue of a particular property will depend upon the value of the leases of suchproperty.

 

***We are dependent on tenants for our revenue.***

 

Certain of ourproperties may be occupied by a single tenant. As a result, the success ofthose properties will depend on the financial stability of a single tenant.Lease payment defaults by tenants could cause us to reduce the amount ofdistributions to shareholders. A default by a tenant on its lease paymentscould force us to find an alternative source of revenue to pay any mortgageloan on the property. In the event of a tenant default, we may experiencedelays in enforcing our rights as landlord and may incur substantial costs inprotecting our investment and re-letting our property. If a lease isterminated, we may be unable to lease the property for the rent previouslyreceived or sell the property without incurring a loss.

 

***We may not have funding for future tenant improvements.***

 

When a tenant atone of our properties does not renew its lease or otherwise vacates its spacein one of our buildings, it is likely that, in order to attract one or more newtenants, we will be required to expend funds to construct new tenantimprovements in the vacated space. Substantially all of our net offeringproceeds will be invested in real estate properties, and while we intend tomanage our cash position or financing availability to pay for any improvementsrequired

 

20

----

 

for releasing we cannotassure investors that we will have adequate sources of funding available to usfor such purposes in the future.

 

***Uninsured losses relating to real property may adverselyaffect investor’s returns.***

 

The Advisor will attempt to ensure that all of ourproperties are adequately insured to cover casualty losses. However, changes inthe cost or availability of insurance could expose us to uninsured casualtylosses. In the event that any of our properties incurs a casualty loss that isnot fully covered by insurance, the value of our assets will be reduced by anysuch uninsured loss. In addition, we may have no source of funding to repair orreconstruct the damaged property, and we cannot assure shareholders that anysuch sources of funding will be available to us for such purposes in thefuture.

 

***Development and construction of properties may result indelays and increased costs and risks.***

 

We may invest some of the net offering proceedsavailable for investment in the acquisition of raw land upon which we willdevelop and construct improvements at a fixed contract price. In any such projectswe will be subject to risks relating to the builder’s ability to controlconstruction costs or to build in conformity with plans, specifications andtimetables. The builder’s failure to perform may result in legal action by usto rescind the purchase or construction contract or to enforce the builder’sobligations. Performance may also be affected or delayed by conditions beyondthe builder’s control. Delays in completion of construction could also givetenants the right to terminate preconstruction leases for space at a newlydeveloped project. We may incur additional risks when we make periodic progresspayments or other advances to such builders prior to completion ofconstruction. Each of those factors could result in increased costs of aproject or partial loss of our investment. In addition, we will be subject tonormal lease-up risks relating to newly constructed projects if they are notfully leased prior to the commencement of construction. Furthermore, the pricewe agree to pay for the land will be based on projections of rental income andexpenses and estimates of construction costs as well as the fair market valueof the property upon completion of construction. If our projections areinaccurate, we may pay too much for the land and fail to achieve our forecastof returns due to the factors discussed above.

 

***Competition for investments may increase costs and reducereturns.***

 

We will compete for real property investments withpension funds and their advisors, bank and insurance company investmentaccounts, other real estate investment trusts, real estate limitedpartnerships, individuals and other entities engaged in real estate investmentactivities. Competition for investments may have the effect of increasingacquisition costs and reducing shareholder’s returns.

 

***Delays in acquisitions of properties may have adverseeffects on shareholder’s investment.***

 

Delays we encounter in the selection, acquisition anddevelopment of properties could adversely affect shareholder’s returns. Whereproperties are acquired prior to the start of construction, it will typicallytake 8-14 months to complete construction and rent available space. Therefore,shareholders could suffer in the amount and timing of distributions of cashdividends as a result to those particular properties. Our charter limits theamount we can invest in unimproved land.

 

***Uncertain market conditions and the broaddiscretion of the Advisor relating to the future disposition of propertiescould adversely affect the return on shareholder’s investment.***

 

We expect to hold the various real properties in whichwe invest until such time as the Advisor decides that a sale or otherdisposition is appropriate given our investment objectives. The Advisor,subject to approval of the board, may exercise its discretion as to whether andwhen to sell a property, and we will have no obligation to sell properties atany particular time, except upon a liquidation of our properties if we do notlist the common stock within ten years after the initial closing under thisoffering. We cannot predict the various market conditions affecting real estateinvestments which will exist at any particular time in the future. Due to theuncertainty of market conditions which may affect the future disposition of ourproperties, we cannot assure shareholders that we will be able to sell ourproperties at a profit in the future. Accordingly, the extent to whichshareholders will receive cash distributions and realize potential appreciationon our real estate investments will be dependent upon fluctuating marketconditions.

 

21

----

 

***Discovery of previously undetected environmentally hazardousconditions may adversely affect our operating results.***

 

Under various federal, state and local environmentallaws, a current or previous owner or operator of real property may be liablefor the cost of removing or remediating hazardous or toxic substances on suchproperty. Such laws often impose liability whether or not the owner or operatorknew of, or was responsible for, the presence of such hazardous or toxicsubstances. Environmental laws also may impose restrictions on the manner inwhich property may be used or businesses may be operated. A property owner whoviolates environmental laws may be subject to sanctions which may be enforcedby governmental agencies or, in certain circumstances, by private parties. Inconnection with the acquisition and ownership of our properties, we may beexposed to such costs. The cost of defending against environmental claims, ofcompliance with environmental regulatory requirements or of remediating anycontaminated property could materially adversely affect the business, assets orresults of operations of Dividend Capital Trust and, consequently, amountsavailable for distribution to our shareholders.

 

***If we fail to make our debt payments, we could lose ourinvestment in a property.***

 

Loans obtained to fund property acquisitions willgenerally be secured by first mortgages on those properties. If we are unableto make our debt service payments as required, a lender could foreclose on theproperty or properties securing its debt. This could cause us to lose part orall of our investment which in turn could cause the value of the common stockand the distribution payable to shareholders to be reduced.

 

***Lenders require us to enter into restrictive covenantsrelating to our operations.***

 

In connection with obtaining certain financing,lenders impose restrictions on us which affect our ability to incur additionaldebt and our ability to make distributions to our shareholders. Loan documentswe enter into contain negative covenants which limit our ability to furthermortgage the property, replace the Advisor or impose other limitations.

 

***We have entered into financing arrangementsinvolving balloon payment obligations, which may adversely affect our abilityto pay dividends.***

 

Some of our financing arrangements require us to makea lump-sum or “balloon” payment at maturity. Our ability to make a balloonpayment at maturity is uncertain and may depend upon our ability to obtainadditional financing or our ability to sell the property. At the time theballoon payment is due, we may or may not be able to refinance the balloonpayment on terms as favorable as the original loan or sell the property at aprice sufficient to make the balloon payment. The effect of a refinancing orsale could affect the rate of return to shareholders and the projected time ofdisposition of our assets. In addition, payments of principal and interest madeto service our debts may leave us with insufficient cash to pay thedistributions that we are required to pay to maintain our qualification as aREIT.

 

***We depend on key personnel.***

 

Our success depends to a significant degree upon thecontinued contributions of certain key personnel, including James Mulvihill,Thomas Wattles and Evan Zucker, each of whom would be difficult to replace. Wecurrently do not have key man life insurance on any person. If any of our keypersonnel were to cease employment with us, our operating results could suffer.We also believe that our future success depends, in large part, upon ourability to hire and retain highly skilled managerial, operational and marketingpersonnel. Competition for such personnel is intense, and we cannot assureshareholders that we will be successful in attracting and retaining suchskilled personnel.

 

**RisksAssociated with Our Partnership’s Private Placement**

 

***Our operating partnership’s private placement subjects us toliabilities.***

 

Our operating partnership has developed certaintransaction structures that are designed to provide investors that own realproperty, either directly or indirectly through a limited liability company orlimited partnership, with the opportunity to receive limited partnership unitsin our operating partnership in exchange for their direct or indirect interests

 

22

----

 

in such real property ona tax-deferred basis. These transactions depend on the interpretation of, andcompliance with, extremely technical tax laws and regulations. As the generalpartner of our operating partnership, we may be subject to liability, fromlitigation or otherwise, as a result of these transactions, includingtransactions where an investor fails to qualify for the desired tax advantage.

 

***We have and may continue to acquireco-ownership interests in real property that are subject to certainco-ownership agreements which may affect our ability to operate or dispose ofthe property or our co-ownership interest.***

 

We have and may continue to acquire co-ownershipinterests, especially in connection with our operating partnership’s privateplacement, such as tenancy-in-common interests in real property, that aresubject to certain co-ownership agreements. The co-ownership agreements maylimit our ability to encumber, lease, or dispose or our co-ownership interest.Such agreements could affect our ability to turn our investments into cash andcould affect cash available for distributions to you. The co-ownership agreementscould also impair our ability to take actions that would otherwise be in thebest interest of our shareholders and, therefore, may have an adverse impact onthe value of our shares, relative to the value that would result if theco-ownership agreements did not exist.

 

***We may acquire properties with “lock-out” provisions whichmay affect our ability to dispose of the properties.***

 

We may acquire properties that are subject tocontractual “lock-out” provisions that could restrict our ability to dispose ofthe property for a period of time. Lock-out provisions could affect our abilityto turn our investments into cash and could affect cash available fordistributions to you. Lock-out provisions could also impair our ability to takeactions during the lock-out period that would otherwise be in the best interestof our shareholders and, therefore, may have an adverse impact on the value ofour shares, relative to the value that would result if the lock-out provisionsdid not exist.

 

***We may acquire interests in partnerships that could subjectus to additional liabilities.***

 

We will acquire partnership interests, especially inconnection with our operating partnership’s private placement, includinggeneral partnership interests, in partnerships that could subject us to theliabilities of the partnership.

 

**FederalIncome Tax Risks**

 

***Failure to qualify as a REIT could adversely affect ouroperations and our ability to make distributions.***

 

We have qualified for REIT status for federal incometax purposes in conjunction with our 2003 federal tax return. Although we donot intend to request a ruling from the Internal Revenue Service as to our REITstatus, we have received the opinion of our special counsel, Skadden, Arps,Slate, Meagher & Flom LLP, that we operate in a manner that will enable usto meet the requirements for qualification as a REIT for federal income taxpurposes. This opinion was issued in connection with our initial publicoffering offering. The opinion of Skadden, Arps, Slate, Meagher & Flom LLPwill represent only the view of our counsel based on our counsel’s review andanalysis of existing law and on certain representations as to factual mattersand covenants made by us, including representations relating to the values ofour assets and the sources of our income. No assurance can be given that we areorganized or will continue to operate in a manner so as to qualify or remain soqualified. Qualification as a REIT involves the satisfaction of numerousrequirements (some on an annual and quarterly basis) established under highlytechnical and complex provisions of the Code for which there are only limitedjudicial or administrative interpretations, and involves the determination ofvarious factual matters and circumstances not entirely within our control. (See“Federal Income Tax Considerations General—REIT Qualification” and “FederalIncome Tax Considerations General—Requirement for Qualification as a REIT”).

 

If we fail to qualify as a REIT in any taxable yearfor which a REIT election has been made, we would not be allowed a deductionfor dividends paid to our shareholders in computing our taxable income andwould be subject to federal income tax (including any applicable alternativeminimum tax) on our taxable income at corporate rates. Moreover, unlessentitled to relief under certain statutory provisions, we would also bedisqualified from treatment as a REIT for the four taxable years following theyear during which qualification is lost. This treatment would reduce our netearnings available for investment or distribution to our shareholders becauseof the additional tax liability to us for the years involved. As a

 

23

----

 

result of the additionaltax liability, we might need to borrow funds or liquidate certain investmentson terms that may be disadvantageous to us in order to pay the applicable tax,and we would not be compelled to make distributions under the Code.

 

We believe that Dividend Capital OP will be treatedfor federal income tax purposes as a partnership and not as an association oras a publicly traded partnership taxable as a corporation. If the InternalRevenue Service were to successfully determine that Dividend Capital OP shouldhave been properly treated as a corporation, Dividend Capital OP would berequired to pay federal income tax at corporate rates on its net income, itspartners would be treated as shareholders of Dividend Capital OP anddistributions to partners would constitute dividends that would not bedeductible in computing Dividend Capital OP’s taxable income. In addition, wewould fail to qualify as a REIT, with the resulting consequences describedabove. See “Federal Income Tax Considerations—Federal Income Tax Aspects of OurPartnership—Classification as a Partnership.”

 

***To qualify as a REIT, we must meet annual distributionrequirements.***

 

To obtain the favorable tax treatment accorded toREITs, we normally will be required each year to distribute to our shareholdersat least 90% of our REIT taxable income, determined without regard to thededuction for dividends paid and by excluding net capital gains. We will besubject to federal income tax on our undistributed taxable income and netcapital gain and to a 4% nondeductible excise tax on any amount by whichdistributions we pay with respect to any calendar year are less than the sum of85% of our ordinary income, 95% of our capital gain net income and 100% of ourundistributed income from prior years. These requirements could cause us todistribute amounts that otherwise would be spent on acquisitions of propertiesand it is possible that we might be required to borrow funds or sell assets tofund these distributions. Although we intend to make distributions sufficientto meet the annual distribution requirements and to avoid corporate incometaxation on the earnings that we distribute, it is possible that we might notalways be able to do so.

 

***Legislative or regulatory action could adversely affectinvestors.***

 

In recent years, numerous legislative, judicial andadministrative changes have been made to the federal income tax laws applicableto investments in REITs and similar entities. Additional changes to tax lawsare likely to continue to occur in the future, and we cannot assureshareholders that any such changes will not adversely affect the taxation of ashareholder. Any such changes could have an adverse effect on an investment inour common stock. Shareholders are urged to consult with their tax advisor withrespect to the status of legislative, regulatory or administrative developmentsand proposals and their potential effect on an investment in common stock.

 

**RetirementPlan Risks**

 

***There are special considerations that apply to pension orprofit sharing trusts or IRAs investing in common stock.***

 

If shareholders are investing the assets of an IRA,pension, profit sharing, 401(k), Keogh or other qualified retirement plan,shareholders should satisfy themselves that:

 

•                                          Theshareholder’s investment is consistent with their fiduciary obligations underERISA and the Internal Revenue Code;

 

•                                          Yourinvestment is made in accordance with the documents and instruments governingyour plan or IRA, including your plan’s investment policy;

 

•                                          Yourinvestment satisfies the prudence and diversification requirements of Sections404(a)(1)(B) and 404(a)(1)(C) of ERISA;

 

•                                          Yourinvestment will not impair the liquidity of the plan or IRA;

 

•                                          Yourinvestment will not produce “unrelated business taxable income” for the plan orIRA;

 

•                                          Youwill be able to value the assets of the plan annually in accordance with ERISArequirements; and

 

•                                          Yourinvestment will not constitute a prohibited transaction under Section 406 ofERISA or Section 4975 of the Internal Revenue Code.

 

24

----

 

**Conflictsof Interest**

 

***The Advisor will face conflicts of interest relating to timemanagement.***

 

The Advisor is currently involved in other businessopportunities with third parties. Managers of the Advisor are currently engagedin other real estate activities, including acquisition and development ofcommercial and residential real estate in the United States and Mexico. We arenot able to estimate the amount of time that managers of the Advisor willdevote to our business. As a result, managers of the Advisor may have conflictsof interest in allocating their time between our business and these otheractivities. During times of intense activity in other programs and ventures,the time they devote to our business may decline and be less than we wouldrequire. We expect that as our real estate activities expand, the Advisor mayattempt to hire additional employees who would devote substantially all oftheir time to the business of Dividend Capital Trust and its affiliates.However, there can be no assurance that the Advisor will devote adequate timeto our business activities.

 

***The Advisor may face conflicts of interest relating to thepurchase and leasing of properties.***

 

We may be buying properties at the same time as otherentities that are affiliated with the Advisor. There is a risk that the Advisorwill choose a property that provides lower returns to us than a propertypurchased by another entity affiliated with the Advisor. We may acquireproperties in geographic areas where other affiliates of the Advisor ownproperties. If one of the entities affiliated with the Advisor attracts atenant that we are competing for, we could suffer a loss of revenue due todelays in locating another suitable tenant.

 

***There may be risks associated with the Company entering intojoint ventures..***

 

We may enter into joint ventures with third partiesfor the acquisition, development and improvement of properties. We may alsopurchase and develop properties in joint ventures or in partnerships,co-tenancies or other co-ownership arrangements with the sellers of theproperties, affiliates of the sellers, developers or other persons. Suchinvestments may involve risks not otherwise present with a direct investment inreal estate, including, for example:

 

•                                          Thepossibility that our venture partner, co-tenant or partner in an investmentmight become bankrupt;

 

•                                          Thatsuch venture partner, co-tenant or partner may at any time have economic orbusiness interests or goals which are or which become inconsistent with ourbusiness interests or goals; or

 

•                                          Thatsuch venture partner, co-tenant or partner may be in a position to take actioncontrary to our instructions or requests or contrary to our policies orobjectives.

 

Actions by such aventure partner or co-tenant might have the result of subjecting the propertyto liabilities in excess of those contemplated and may have the effect ofreducing your returns.

 

Under certainjoint venture arrangements, neither venture partner may have the power tocontrol the venture, and an impasse could be reached, which might have anegative influence on the joint venture and decrease potential returns to you.In the event that a venture partner has a right of first refusal to buy out theother partner, it may be unable to finance such buy-out at that time. It mayalso be difficult for us to sell our interest in any such joint venture orpartnership or as a co-tenant in property. In addition, to the extent that ourventure partner or co-tenant is an affiliate of the Advisor, certain conflictsof interest will exist. (See “Conflicts of Interest—Joint Ventures withAffiliates of the Advisor”).

 

25

----

 

**ITEM7A.    QUANTITATIVE AND QUALITATIVEDISCLOSURE ABOUT MARKET RISK**

 

Market risk is therisk of loss from adverse changes in market prices and interest rates. Ourfuture earnings and cash flows are dependent upon prevailing market rates.  Accordingly, we manage our market risk bymatching projected cash inflows from operating, investing and financingactivities with projected cash outflows for debt service, acquisitions, capitalexpenditures, distributions to stockholders and unitholders, and other cashrequirements. The majority of our outstanding debt has fixed interest rates,which minimizes the risk of fluctuating interest rates. Our exposure to marketrisk includes interest rate fluctuations in connection with our creditfacilities and other variable rate borrowings. As of December 31, 2003 and2002, we had no hedging arrangements.

 

The table belowsummarizes the market risks associated with our fixed and variable rated debtoutstanding at December 31:

 
|                                                                                                                                                                                                                             |   | **2003**   |       | **2002** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|----------|--------|
|                                                                                                                                                                                                                             |   |       |       |     |   |
| Senior secured  revolving credit facility, variable interest at LIBOR plus 1.125% to 1.500%  (interest rate of 2.25% at December 31, 2003) or prime, at the election of  the Company, due April 2004 (February 2007, as amended) |   | $          | 1,000,000  |     | $      | — |   |
|                                                                                                                                                                                                                             |   |       |       |     |   |
| Company secured  debt, interest rate of 5.0% at December 31, 2003, due February 2011                                                                                                                                             |   | 40,500,000 |       | —   |   |
|                                                                                                                                                                                                                             |   |       |       |     |   |
| Total                                                                                                                                                                                                                            |   | $          | 41,500,000 |     | $      | — |   |

 

If market rates ofinterest on our variable rate debt increased by 10% (or approximately 23 basispoints), the increase in interest expense on the variable rate debt would be$2,300 annually. As of December 31, 2003, the estimated fair value of our debtwas $41,500,000 million based on our estimate of current market interest rates.

 

26

----

**ITEM8****. FINANCIAL STATEMENTS**

 

 

DIVIDEND CAPITALTRUST INC.

 

INDEX TO FINANCIALSTATEMENTS

 
| Independent  Auditors’ Report                                                                                                                                                        | 28     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                      |   |
| Consolidated Balance Sheets  as of December 31, 2003 and December 31, 2002                                                                                                      | 29     |
|                                                                                                                                                                                      |   |
| Consolidated  Statements of Operations for the Year Ended December 31, 2003 and for  the Period from Inception (April 12, 2002) to December 31, 2002                       | 30     |
|                                                                                                                                                                                      |   |
| Consolidated  Statements of Shareholders’ Equity (Deficit) for the Year Ended  December 31, 2003 and the Period from Inception (April 12, 2002) to  December 31, 2002 | 31     |
|                                                                                                                                                                                      |   |
| Consolidated  Statements of Cash Flows for the Year Ended December 31, 2003 and for  the Period from Inception (April 12, 2002) to December 31, 2002                       | 32     |
|                                                                                                                                                                                      |   |
| Notes to  Consolidated Financial Statements                                                                                                                                               | 33     |
|                                                                                                                                                                                      |   |
| Independent  Auditors' Report on Schedule                                                                                                                                                 | 47     |
|                                                                                                                                                                                      |   |
| Schedule III - Real  Estate and Accumulated Depreciation                                                                                                                                  | 48     |

 

27

----

 

**Independent Auditors’ Report**

 

 

To DividendCapital Trust Inc.:

 

We have auditedthe accompanying consolidated balance sheets of Dividend Capital Trust Inc. andsubsidiary as of December 31, 2003 and 2002, and the related consolidatedstatements of operations, shareholder’s equity (deficit) and cash flows for theyear ended December 31, 2003 and the period from inception (April 12, 2002) toDecember 31, 2002. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audits.

 

We conducted ouraudits in accordance with auditing standards generally accepted in the UnitedStates of America. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether the financial statements are freeof material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the consolidated financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion,the consolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Dividend Capital Trust Inc. andsubsidiary as of December 31, 2003 and 2002, and the results of theiroperations and their cash flows for the year ended December 31, 2003 and theperiod from inception (April 12, 2002) to December 31, 2002, in conformity withaccounting principles generally accepted in the United States of America.

** **

** **

**KPMGLLP**

 

Denver, ColoradoFebruary 10, 2004

 

28

----

 

**DividendCapital Trust Inc. and Subsidiary**

 

Consolidated Balance Sheets

December 31, 2003 and 2002

 
|                                                                                                                                                                   |   | **2003**    |        | **2002** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|-------------|----------|--------|
|                                                                                                                                                                   |   |        |        |     |   |
| **ASSETS**                                                                                                                                                             |   |        |        |     |   |
| Land                                                                                                                                                                   |   | $           | 17,380,389  |     | $      | — |   |
| Buildings  and improvements                                                                                                                                            |   | 120,062,846 |        | —   |   |
| Intangible  lease asset                                                                                                                                                |   | 14,402,878  |        | —   |   |
| Less  accumulated depreciation and amortization                                                                                                                        |   | (1,212,762  | )           | —   |   |
| **Net Investment in Real Estate**                                                                                                                                      |   | 150,633,351 |        | —   |   |
|                                                                                                                                                                   |   |        |        |     |   |
| Cash  and cash equivalents                                                                                                                                             |   | 4,076,642   |        | 11,055   |   |
| Other  assets, net                                                                                                                                                     |   | 1,897,543   |        | 740,623  |   |
| **Total Assets**                                                                                                                                                       |   | $           | 156,607,536 |     | $      | 751,678 |   |
|                                                                                                                                                                   |   |        |        |     |   |
| **LIABILITIES & SHAREHOLDERS’ EQUITY (DEFICIT)**                                                                                                              |   |        |        |     |   |
| Liabilities:                                                                                                                                                           |   |        |        |     |   |
| Accounts  payable and accrued expenses                                                                                                                                 |   | $           | 1,179,871   |     | $      | 79,500 |   |
| Dividends  payable                                                                                                                                                     |   | 1,473,944   |        | —   |   |
| Subscriptions  for common shares                                                                                                                                       |   | —      |        | 681,890  |   |
| Other  liabilities                                                                                                                                                     |   | 1,498,132   |        | —   |   |
| Intangible  lease liability, net                                                                                                                                       |   | 1,434,548   |        | —   |   |
| Line  of credit                                                                                                                                                        |   | 1,000,000   |        | —   |   |
| Mortgage  note                                                                                                                                                         |   | 40,500,000  |        | —   |   |
| Financing  obligation                                                                                                                                                  |   | 2,695,696   |        | —   |   |
| **Total Liabilities**                                                                                                                                                  |   | 49,782,191  |        | 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, 12,470,400 and 200  shares issued and outstanding as of December 31, 2003 and 2002,  respectively |   | 124,704     |        | 2        |   |
| Additional  paid-in capital                                                                                                                                            |   | 108,816,615 |        | 1,998    |   |
| Distributions  in excess of earnings                                                                                                                                   |   | (2,116,974  | )           | (12,712  | )      |
| **Total Shareholders’ Equity (Deficit)**                                                                                                                          |   | 106,824,345 |        | (10,712  | )      |
| **Total Liabilities and Shareholders’ Equity (Deficit)**                                                                                                          |   | $           | 156,607,536 |     | $      | 751,678 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

29

----

 

**DividendCapital Trust Inc. and Subsidiary**

 

Consolidated Statements of Operations

 
|                                                     |   | **Year Ended  December 31,  2003** |      | **For the  Period  From Inception  (April 12, 2002)  to  December 31,  2002** |   |
|----------------------------------------------------------|--------|-----------------------------------------|-----------|-----------------------------------------------------------------------------------------|--------|
|                                                     |   |                                    |      |                                                                                    |   |
| **REVENUE:**                                             |   |                                    |      |                                                                                    |   |
| Rental  revenue                                          |   | $                                       | 2,289,074 |                                                                                    | $      | — |   |
| Other  real estate income                                |   | 356,019                                 |      | —                                                                                  |   |
| Other  income                                            |   | 61,364                                  |      | 155                                                                                     |   |
| **Total Revenue**                                        |   | 2,706,457                               |      | 155                                                                                     |   |
|                                                     |   |                                    |      |                                                                                    |   |
| **EXPENSES:**                                            |   |                                    |      |                                                                                    |   |
| Rental  expenses                                         |   | 366,650                                 |      | —                                                                                  |   |
| Depreciation  & amortization                         |   | 1,195,330                               |      | —                                                                                  |   |
| Interest  expense                                        |   | 385,424                                 |      | —                                                                                  |   |
| General  and administrative expenses                     |   | 411,948                                 |      | 212,867                                                                                 |   |
| **Total Expenses**                                       |   | 2,359,352                               |      | 212,867                                                                                 |   |
|                                                     |   |                                    |      |                                                                                    |   |
| **Net income (loss) before minority interest**           |   | 347,105                                 |      | (212,712                                                                                | )      |
|                                                     |   |                                    |      |                                                                                    |   |
| **Minority Interest**                                    |   | —                                  |      | 200,000                                                                                 |   |
|                                                     |   |                                    |      |                                                                                    |   |
| **NET INCOME (LOSS)**                                    |   | $                                       | 347,105   |                                                                                    | $      | (12,712 | ) |
|                                                     |   |                                    |      |                                                                                    |   |
| **WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING** |   |                                    |      |                                                                                    |   |
| Basic                                                    |   | 3,987,429                               |      | 200                                                                                     |   |
|                                                     |   |                                    |      |                                                                                    |   |
| Diluted                                                  |   | 4,007,429                               |      | 200                                                                                     |   |
|                                                     |   |                                    |      |                                                                                    |   |
| **NET INCOME (LOSS) PER COMMON SHARE**                   |   |                                    |      |                                                                                    |   |
| Basic                                                    |   | $                                       | 0.09      |                                                                                    | $      | (63.56 | ) |
|                                                     |   |                                    |      |                                                                                    |   |
| Diluted                                                  |   | $                                       | 0.09      |                                                                                    | $      | (63.56 | ) |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

30

----

 

**DividendCapital Trust Inc. and Subsidiary**

 

Consolidated Statements of Shareholders’ Equity(Deficit)

For the Year EndedDecember 31, 2003 and for the Period From Inception

(April 12,2002) to December 31, 2002

 
|                                                            |   | **Common  Shares** |   | **Additional  Paid-in** |    | **Distributions  in  Excess of** |   | **Total  Shareholders’** |   |
|-----------------------------------------------------------------|--------|--------------------|--------|-------------------------|---------|----------------------------------|--------|-------------------------------|--------|
|                                                            |   | **Shares**         |   | **Amount**              |    | **Capital**                      |   | **Earnings**                  |   | **Equity  (Deficit)** |   |
|                                                            |   |               |   |                    |    |                             |   |                          |   |   |   |
| **Balances, Inception (April 12, 2002)**                   |   | —             |   | $                       | —  |                             | $      | —                        |   | $ | — |   | $ | — |   |
|                                                            |   |               |   |                    |    |                             |   |                          |   |   |   |
| Issuance  of common stock                                       |   | 200                |   | 2                       |    | 1,998                            |   | —                        |   | 2,000 |   |
|                                                            |   |               |   |                    |    |                             |   |                          |   |   |   |
| Net  loss                                                       |   | —             |   | —                  |    | —                           |   | (12,712                       | )      | (12,712 | ) |
|                                                            |   |               |   |                    |    |                             |   |                          |   |   |   |
| **Balances, December 31, 2002**                            |   | 200                |   |                    | 2       |                             |   | 1,998                         |   |   | (12,712 | ) |   | (10,712 | ) |
|                                                            |   |               |   |                    |    |                             |   |                          |   |   |   |
| Issuance  of common stock, net of offering costs of $14,803,727 |   | 12,470,200         |   | 124,702                 |    | 108,811,836                      |   | —                        |   | 108,936,538 |   |
|                                                            |   |               |   |                    |    |                             |   |                          |   |   |   |
| Amortization  of stock options                                  |   | —             |   | —                  |    | 2,781                            |   | —                        |   | 2,781 |   |
|                                                            |   |               |   |                    |    |                             |   |                          |   |   |   |
| Dividends  on common shares                                     |   | —             |   | —                  |    | —                           |   | (2,451,367                    | )      | (2,451,367 | ) |
|                                                            |   |               |   |                    |    |                             |   |                          |   |   |   |
| Net  income                                                     |   | —             |   | —                  |    | —                           |   | 347,105                       |   | 347,105 |   |
|                                                            |   |               |   |                    |    |                             |   |                          |   |   |   |
| **Balances, December 31, 2003**                            |   | 12,470,400         |   | $                       | 124,704 |                             | $      | 108,816,615                   |   | $ | (2,116,974 | ) | $ | 106,824,345 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

31

----

 

**DividendCapital Trust Inc. and Subsidiary**

 

Consolidated Statements of Cash Flows

 
|                                                                                                 |   | **For the  Year  Ended  December 31, 2003** |      | **For the  Period  From Inception  (April 12, 2002)  to  December 31, 2002** |   |
|------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|-----------|----------------------------------------------------------------------------------------|--------|
|                                                                                                 |   |                                             |      |                                                                                   |   |
| **OPERATING ACTIVITIES:**                                                                            |   |                                             |      |                                                                                   |   |
| Net  income (loss)                                                                                   |   | $                                                | 347,105   |                                                                                   | $      | (12,712 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by (used in) operating  activities: |   |                                             |      |                                                                                   |   |
| Depreciation  and amortization                                                                       |   | 1,220,929                                        |      | —                                                                                 |   |
| Increase  in other assets                                                                            |   | (222,099                                         | )         | (5,810                                                                                 | )      |
| Increase  in accounts payable, accrued expenses and other liabilities                                |   | 353,853                                          |      | 79,500                                                                                 |   |
| Minority  interest                                                                                   |   | —                                           |      | (200,000                                                                               | )      |
|                                                                                                 |   |                                             |      |                                                                                   |   |
| **Net cash provided by (used in) operating activities**                                              |   | 1,699,788                                        |      | (139,022                                                                               | )      |
|                                                                                                 |   |                                             |      |                                                                                   |   |
| **INVESTING ACTIVITIES:**                                                                            |   |                                             |      |                                                                                   |   |
| Real  estate investments                                                                             |   | (148,764,953                                     | )         | —                                                                                 |   |
| Increase  in other investment activities                                                             |   | (1,183,275                                       | )         | —                                                                                 |   |
| **Net cash used in investing activities**                                                            |   | (149,948,228                                     | )         | —                                                                                 |   |
|                                                                                                 |   |                                             |      |                                                                                   |   |
| **FINANCING ACTIVITIES:**                                                                            |   |                                             |      |                                                                                   |   |
| Borrowings  on line of credit                                                                        |   | 9,000,000                                        |      | —                                                                                 |   |
| Payment  on line of credit                                                                           |   | (8,000,000                                       | )         | —                                                                                 |   |
| Borrowings  on mortgage notes                                                                        |   | 51,850,000                                       |      | —                                                                                 |   |
| Payment  on mortgage notes                                                                           |   | (11,350,000                                      | )         | —                                                                                 |   |
| Borrowings  on finance obligation                                                                    |   | 2,695,696                                        |      | —                                                                                 |   |
| Payment  of deferred loan costs                                                                      |   | (250,412                                         | )         | —                                                                                 |   |
| Decrease  (increase) in advance for offering costs, related party                                    |   | 52,923                                           |      | (52,923                                                                                | )      |
| Increase  in restricted cash                                                                         |   | —                                           |      | (681,890                                                                               | )      |
| Proceeds  from subscriptions for common shares                                                       |   | —                                           |      | 681,890                                                                                |   |
| Proceeds  from sale of common shares                                                                 |   | 124,139,265                                      |      | 2,000                                                                                  |   |
| Dividends  paid to common shareholders                                                               |   | (977,423                                         | )         | —                                                                                 |   |
| Proceeds  from issuance of Partnership Units to related party                                        |   | —                                           |      | 200,000                                                                                |   |
| Proceeds  from issuance of Special Units to related party                                            |   | —                                           |      | 1,000                                                                                  |   |
| Offering  costs for issuance of common stock                                                         |   | (14,846,022                                      | )         | —                                                                                 |   |
| **Net cash provided by financing activities**                                                        |   | 152,314,027                                      |      | 150,077                                                                                |   |
|                                                                                                 |   |                                             |      |                                                                                   |   |
| **NET INCREASE IN CASH AND CASH EQUIVALENTS**                                                        |   | $                                                | 4,065,587 |                                                                                   | $      | 11,055 |   |
|                                                                                                 |   |                                             |      |                                                                                   |   |
| **CASH AND CASH EQUIVALENTS, beginning of period**                                                   |   | $                                                | 11,055    |                                                                                   | $      | — |   |
|                                                                                                 |   |                                             |      |                                                                                   |   |
| **CASH AND CASH EQUIVALENTS, end of period**                                                         |   | $                                                | 4,076,642 |                                                                                   | $      | 11,055 |   |
|                                                                                                 |   |                                             |      |                                                                                   |   |
| **Cash paid for interest expense**                                                                   |   | $                                                | 344,268   |                                                                                   | $      | — |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

32

----

 

**Dividend Capital Trust Inc. andSubsidiary**

 

Notes toConsolidated Financial Statements

 

**Note 1 – Organization**

 

Dividend Capital TrustInc. (the “Company”) was formed as a Maryland corporation in April 2002 inorder to invest in commercial real estate properties consisting primarily ofgeneric distribution warehouses and light industrial properties net leased tocorporate tenants.  The Company operatesand intends to continue to operate in a manner to qualify for real estateinvestment trust (“REIT”) status for federal income tax purposes and intends toelect REIT status in conjunction with the filing of its 2003 federal taxreturn.  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 amajority owned subsidiary, Dividend Capital Operating Partnership LP (the“Partnership”), a Delaware limited partnership.

 

The Company is anexternally advised REIT and Dividend Capital Advisors LLC (the “Advisor”)manages the day to day activities and the investment activities of the Companyunder the Advisory Agreement, as amended. Dividend Capital Securities LLC (the “Dealer Manager”) serves as thedealer manager of the Company’s public offering and provides selling servicesunder the Dealer Manager Agreement, as amended.  These related parties receive compensation and fees for servicesrelating to the offering and for the investment and management of the Company’sassets (see note 13).

 

In April 2002, theCompany sold 200 shares of common stock, $0.01 par value, to an affiliate ofthe Advisor at a price of $10 per share. On April 15, 2002, the Company filed a Form S-11 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 receivedapproval of its offering in all fifty states in December 2002.  The common stock is currently being offeredat a price of $10 per share on a 200,000 share minimum, 25,000,000 sharemaximum, best-efforts basis. The Registration Statement also covers up to4,000,000 shares available pursuant to the Company’s distribution reinvestmentplan and up to 1,000,000 shares issuable upon the exercise of warrants that maybe 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,at which time 226,567 shares of common stock were issued to investors.

 

The Partnership issued tothe Advisor 20,000 limited partnership units in exchange for $200,000representing an initial 99% limited partnership interest in thePartnership.  The Company contributed$2,000 to the Partnership in exchange for 200 general partnership unitsrepresenting a 1% general partnership interest in the Partnership.  As of December 31, 2003, due to thesale of the Company’s common stock and the subsequent contribution to thePartnership for limited partnership interests, the Company has a 99.9%partnership interest. Subject to certain restrictions, the limited partners mayrequire the Partnership to redeem some or all of their operating partnershipunits for the Company’s common shares or, at the option of the Partnership, forcash.   The rights of the limitedpartners are limited and do not include the ability to replace the generalpartner or to approve the sale, purchase or refinancing of the Partnership’sassets.  Due to the Company’s control ofthe Partnership through its general and limited partner interests and thelimited rights of the limited partners, the Partnership is consolidated withthe Company and the limited partnership interest not held by the Company isreflected as minority interest in the accompanying consolidated financialstatements.

 

Dividend Capital AdvisorsGroup LLC, the parent company of the Advisor, has invested $1,000 in thePartnership in exchange for 10,000 special partnership units (the “SpecialUnits”).  Amounts distributable to theholder of the Special Units will depend on operations and the amount of netsales proceeds received from property dispositions or upon other events asfurther described below.  In general,after holders of regular partnership interests have received, in the aggregate,cumulative distributions equal to their capital contributions plus a 7%cumulative non-compounded annual pre-tax return on their net contributions, theholder of the Special Units and the holders of regular partnership interestswill receive 15% and 85%, respectively, of the net sales proceeds received bythe Partnership upon the disposition of the Partnership’s assets.

 

33

----

 

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 (see note13).  If the Advisory Agreement isterminated by the 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 inaccordance with the partnership agreement of the Partnership out of the netsales proceeds.  Net sales proceeds willbe determined by the public market price of the then listed stock in the eventof a listing of the Company’s shares or by the net sales proceeds received inthe event of the disposition of the Company’s properties.  In the case of certain other events, netsales proceeds will be determined by the then fair market value of thePartnership’s assets, as determined by an appraisal, less all of itsliabilities.

 

**Note 2 – Summary of Significant Accounting Policies**

 

*Principles of Consolidation*

 

The accounts of theCompany and 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 ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions relating to the amount of assets and liabilities andthe disclosure of contingent assets and liabilities at the date of theconsolidated 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.

 

*Cash and Cash Equivalents*

 

The Company considers allhighly liquid instruments with maturities when purchased of three months orless to be cash equivalents.

 

*Investment in Real Estate*

 

Upon the acquisition ofreal estate, the Company capitalizes direct costs associated with theacquisition, development or improvement of real estate, including theacquisition fees paid to the Advisor. Capitalized costs associated with unsuccessful acquisition ordevelopment pursuits will be expensed at the time the pursuit is abandoned.

 

Upon acquisition, thepurchase price of a property is allocated to land, building, land improvements,tenant improvements and other intangible assets and associatedliabilities.  The allocation to land,building, land improvements and tenant improvements is based on the Company’sestimate of fair value based on all available information such as appraisals,property condition reports and other related information.  The allocation to intangible lease assetrepresents the value associated with the in-place leases, including leasingcommission, legal and other related costs. In addition, the purchase allocation requires allocating costs to anintangible asset or liability resulting from in-place leases being above orbelow the market rental rates 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 revenue.

 

34

----

 

Real estate, property,and equipment are stated at cost, less accumulated depreciation andamortization.  Depreciation andamortization will be computed on a straight-line basis over the estimateduseful lives as follows:

 

| **Description**                            |   | **Estimated  Useful Lives** |   |
|--------------------------------------------|--------|-----------------------------|--------|
| Land                                       |   | Not depreciated             |   |
| Buildings                                  |   | 20 to 40 years              |   |
| Equipment                                  |   | 5 to 7 years                |   |
| Tenant  improvements and lease commissions |   | Term of lease               |   |
| Intangible  lease asset, net               |   | Average term of  leases     |   |

 

Repairs and Maintenanceare expensed as incurred and improvements are capitalized. The cost of assetssold or retired and the related accumulated depreciation and/or amortizationwill be removed from the accounts and the resulting gain or loss will bereflected in operations in the period in which such sale or retirement occurs.

 

*Long-lived Assets*

 

Long-lived assets to beheld and used by the Company will be reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable. The Company continually evaluates the recoverability of its long-livedassets based on estimated future cash flows and the estimated liquidation valueof such long-lived assets, and provides for impairment if such undiscountedcash flows are insufficient to recover the carrying amount of the long-livedasset. If impaired, the long-lived asset will be written down to its estimatedfair value.

 

*Costs of Raising Capital*

 

Costs incurred inconnection with the issuance of equity securities are deducted fromshareholders’ equity.  Such costsprimarily include the up-front fees paid to related parties (see note 13).

 

*Revenue Recognition*

 

Certain properties haveleases that provide for tenant occupancy during periods that no rent is due orwhere minimum rent payments increase during the term of the lease. The Companywill record rental revenue for the full term of each lease on a straight-linebasis. Accordingly, the Company will record a receivable from tenants that theCompany expects to collect over the remaining lease term rather than currently,which will be recorded as deferred rents receivable. When the Company acquiresa property, the term of existing leases is considered to commence as of theacquisition date for the purposes of this calculation.

 

*Income Taxes*

 

The Company intends tomeet all the requirements to qualify for REIT status and will make an electionunder Internal Revenue Code Section 856 for the taxable year endingDecember 31, 2003.  In order for aformer C 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 accompanyingconsolidated financial statements.

 

35

----

 

*Stock-based Compensation*

 

The Company has twostock-based employee and director compensation plans, which are fully describedin note 11.  During the first quarter of2003 the Company granted 40,000 options under the Independent Director OptionPlan.  The Company accounts for theseplans under the fair value recognition provisions of SFAS No. 123, *Accounting for Stock-Based Compensation*,to stock-based employee, and related interpretations.

 

*Fair Value*

 

The Company’s financialinstruments include a line of credit, mortgage note and a financing obligation.The fair values of these financial instruments were not materially differentfrom their carrying or contract values as of December 31, 2003.  The Company did not have any financialinstruments outstanding during 2002.

 

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

 

Basic net earnings (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.

 

*New Accounting Pronouncements*

 

In November 2002,the FASB issued Interpretation No. 45,*Guarantor’s Accounting and Disclosure Requirementsfor Guarantees, Including Indirect Guarantees of Indebtedness of Others*(“FIN 45”). FIN 45 requires disclosure of off-balance sheet transactions,arrangements, obligations, guarantees or other relationships withunconsolidated entities or other persons that have, or are reasonably likely tohave, a material effect on its financial condition, revenues or expenses,results of operations, liquidity, capital expenditures or capitalresources.  FIN 45 did not have amaterial impact on the Company’s financial position, results of operation orcash flows.

 

In January 2003, theFASB issued Interpretation No. 46,*Consolidation of Variable Interest Entities*(“FIN 46”). FIN 46 requires a variable interest entity to be consolidated by acompany if that company is subject to a majority of the risk of loss from thevariable interest entity’s activities or entitled to receive a majority of theentity’s residual returns or both. FIN 46 requires disclosures about variableinterest entities that a company is not required to consolidate, but in whichit has a significant variable interest. The consolidation requirements apply toexisting public entities as of March 31, 2004. The Company does notbelieve that any of its consolidated or unconsolidated joint ventures arevariable interest entities under the provisions of FIN 46.

 

In May 2003, the FASBissued SFAS No. 150,*Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity* (“SFAS 150”)*.*This Statement establishes standards for how an issuer classifies and measurescertain financial instruments with characteristics of both liabilities andequity. It requires that an issuer classify a financial instrument that iswithin its scope as a liability (or an asset in some circumstances).  The Company adopted the requirements of SFAS150 in the third quarter of 2003 and there was no impact on the Company’sfinancial position, results of operations or cash flows.

 

36

----

 

**Note 3 – Real Estate Acquisitions**

 

The following tablesummarizes the Company’s acquisitions all of which occurred in 2003.

 
| **Property**       |   | **Date  Acquired**     |   | **Number of  Buildings** |       | **Approximate  Total Costs** |            |
|--------------------|--------|------------------------|--------|--------------------------|------------|------------------------------|-----------------|
|               |   |                   |   |                     |       |                         |            |
| Nashville          |   | June 9, 2003      |   | 1                        |       | $                            | 24,500,000      |   |
| Chickasaw          |   | July 22, 2003     |   | 2                        |       | 14,800,000                   |            |
| Rancho             |   | October 16, 2003  |   | 1                        |       | 10,400,000                   |            |
| Mallard  Lake      |   | October 29, 2003  |   | 1                        |       | 11,400,000                   |            |
| West  by Northwest |   | October 30, 2003  |   | 1                        |       | 8,600,000                    |            |
| Park  West         |   | December 15, 2003 |   | 3                        |       | 25,100,000                   |            |
| Pinnacle           |   | December 15, 2003 |   | 2                        |       | 29,300,000                   |            |
| DFW                |   | December 15, 2003 |   | 1                        |       | 11,400,000                   |            |
| Plainfield  I      |   | December 22, 2003 |   | 1                        |       | 15,700,000                   |            |
|               |   |                   |   |                     |       |                         |            |
|               |   | **Total**              |   | **13**                   | ** ** | **$**                        | **151,200,000** | ** ** |

 

*Bridgestone/Firestone Distribution Center*

 

The Bridgestone/Firestonefacility is a single-tenant, newly constructed industrial building with 756,000square feet of leasable space.  Prior tothe end of the seventh year of the initial lease, Bridgestone/Firestone NorthAmerican Tire, LLC has the option to require the Company to build out theadditional 250,000 square feet of expansion space. Upon completion of the buildout, the tenant would be required to lease the entire facility for at leastfive additional years from the expansion commencement date.  The total cost of the Bridgestone/Firestonefacility (including an acquisition fee of $705,000 payable to our Advisor) wasapproximately $24.5 million.

 

*Chickasaw Distribution Center*

 

The Chickasaw buildingsare part of a master planned industrial park called Chickasaw DistributionCenter located in Memphis, Tennessee. Combined these buildings provide approximately 392,000 of rentablesquare feet. The cost of the facilities was approximately $14.8 million(including an acquisition fee of $428,000 payable to our Advisor).

 

*Rancho Technology Park*

 

The Rancho TechnologyPark facility is a newly constructed distribution facility with 201,493 squarefeet of leasable space. This building is located in the westernmost segment ofthe Inland Empire, an industrial sub-market of Los Angeles.  The cost of the Rancho Facility (includingan acquisition fee of $297,795 payable to our Advisor) was approximately $10.4million.  These costs include certainescrow amounts related to the newly negotiated lease with Ozburn-HesseyLogistics, LLC totaling approximately $525,000, which primarily representamounts to be paid for tenant finish and leasing commissions.

 

*Mallard Lake Distribution Center*

 

The Company acquired theMallard Lake Distribution Center, a 222,122 square foot distribution facilitylocated in a business park in Hanover Park, Illinois, a sub-market ofChicago.  The facility is fully leasedto Iron Mountain Inc., an international information storage, management andprotection services company.   The totalcost of Mallard Lake (including an acquisition fee of approximately $330,000payable to our Advisor) was approximately $11.4 million.

 

37

----

 

*West by Northwest Business Center*

 

The Company acquired an189,467 square foot industrial distribution building in the West by NorthwestBusiness Center. The West by Northwest Business Center is located in Houston’snorthwest submarket and was developed by the Opus Group of Companies during1997.  The total cost of West byNorthwest (including an acquisition fee of approximately $248,000 payable toour Advisor) was approximately $8.6 million of which $290,000 is being held inescrow for future tenant improvements.

 

*Park West Distribution Facilities*

 

The Company acquiredthree distribution facilities totaling 470,957 rentable square feetcollectively referred to as Park West, located in Hebron, Kentucky, a submarketof Cincinnati.  The Company purchasedthe buildings from Industrial Development International Inc. (“IDI”), anational developer of industrial properties. The total cost of Park West(including an acquisition fee of approximately $727,500 payable to our Advisor)was approximately $25.1 million.

 

*Pinnacle Industrial Center*

 

The Company acquired thePinnacle Industrial Center, comprised of two buildings totaling approximately730,000 square feet located in Dallas, Texas from Pinnacle Industrial Center LimitedPartnership, an affiliate of IDI.  Thetotal cost of Pinnacle (including an acquisition fee of approximately $849,000payable to our Advisor) was approximately $29.3 million.

 

*DFW Trade Center*

 

The Company acquired theDFW Trade Center (“DFW”), a 253,000 square foot distribution facility locatedin Dallas, Texas. The Company purchased the building from DFW Trade Center IIILimited Partnership, an affiliate of IDI. The total cost of DFW (including anacquisition fee of approximately $330,000 payable to our Advisor) wasapproximately $11.4 million.

 

*Plainfield I Distribution Center*

 

The Company purchased a442,129 square foot distribution facility located in Plainfield, Indiana, asubmarket of Indianapolis. The Company purchased the building from Plainfield IIndustrial Center, LLC, an affiliate of Pizzuti Development Company, a nationaldeveloper of industrial properties. The total cost of Plainfield I (includingan acquisition fee of approximately $453,210 payable to our Advisor) wasapproximately $15.7 million.

 

*ProForma Financial Information*

 

The following unaudited pro forma financialinformation is presented as if the Company had acquired these properties as ofthe beginning of the periods presented. As these acquisitions are assumed to have been made on January 1, 2002,the shares outstanding as of December 31, 2003 are assumed to have been sold asof January 1, 2002 for purposes of calculating per share information.  This information is presented based onhistorical information and as such no pro forma adjustments were made for thoseproperties that were acquired with no operating history such as the NashvilleFacility and the Rancho Technology Park. The information is presented for illustrative purposes only and may notbe indicative of the results that actually would have occurred if theacquisitions had been in effect on the dates indicated or which may be obtainedin the future.

 
|                                                  |   | **2003**   |       | **2002**   |   |
|-------------------------------------------------------|--------|------------|------------|------------|--------|
|                                                  |   |       |       |       |   |
| Revenue                                               |   | $          | 10,089,484 |       | $      | 7,068,031 |   |
| Operating  expenses                                   |   | $          | 2,307,331  |       | $      | 2,131,921 |   |
| Depreciation                                          |   | $          | 5,002,721  |       | $      | 4,859,051 |   |
| Net income  (loss)                                    |   | $          | 182,059    |       | $      | (2,095,808 | ) |
| Net income  (loss) per share — basic and diluted |   | $          | 0.02       |       | $      | (0.17 | ) |
| Shares  outstanding:                                  |   |       |       |       |   |
| Basic                                                 |   | 12,470,400 |       | 12,470,400 |   |
| Diluted                                               |   | 12,490,400 |       | 12,490,400 |   |

 

38

----

 

**Note 4 – Leasing Activity**

 

Future minimum baserental payments due under non-cancelable leases in effect as ofDecember 31, 2003, were as follows:

 
| Year  ending December 31, - |   |       |       |
|----------------------------------|--------|------------|------------|
| 2004                             |   | $          | 12,359,129 |   |
| 2005                             |   | 11,598,124 |       |
| 2006                             |   | 10,922,308 |       |
| 2007                             |   | 9,308,112  |       |
| 2008                             |   | 7,599,151  |       |
| Thereafter                       |   | 25,309,419 |       |
| Total                            |   | $          | 77,096,243 |   |

 

The schedule doesnot reflect future rental revenues from the renewal or replacement of existingleases and excludes property operating expense reimbursements.  This schedule includes payments to bereceived under master lease agreements, however the receipt of these paymentswill be recorded as an adjustment to the basis of the property rather thanrental revenue.

 

**Note 5 – Debt**

 

As of December 31,2003 and 2002, debt consisted of the following:

 
|                                                                                                                                                                                                                      |   | **2003**   |       | **2002** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|----------|--------|
|                                                                                                                                                                                                                      |   |       |       |     |   |
| Senior  secured, revolving credit facility, variable interest at LIBOR plus 1.125% to  1.500% (2.25% at December 31, 2003) or prime, at the election of the  Company, due April 2004 (February 2007 as amended) |   | $          | 1,000,000  |     | $      | — |   |
|                                                                                                                                                                                                                      |   |       |       |     |   |
| Company  secured debt, interest rate of 5.0% at December 31, 2003, due  February 2011                                                                                                                           |   | 40,500,000 |       | —   |   |
|                                                                                                                                                                                                                      |   |       |       |     |   |
| Total                                                                                                                                                                                                                     |   | $          | 41,500,000 |     | $      | — |   |

 

In October 2003, thePartnership entered into a $50 million secured revolving credit facility withBank One.  The Company guarantees thePartnership’s obligations under the credit facility.  The facility in place as of December 31, 2003 would havematured in April 2004, however, the facility has been amended and restatedsubsequent to year-end into a syndicated facility which matures inFebruary 2007 (see note 17). Borrowings under the facility currently bear interest at either primeor, at the election of the Company, LIBOR plus 112.5 to 150.0 basis points,depending upon the level of leverage on the assets pledged to secure thefacility, and is subject to an annual 25 basis point facility fee.  As of December 31, 2003, one asset,with a cost of approximately $11.4 million is pledged to secure thisfacility.  Monthly debt service paymentson the facility are interest only. The Company uses the facility principallyfor the acquisition of properties and for general working capital requirements.  The total amount available under the creditfacility fluctuates based upon the borrowing base, as defined in the agreementgoverning the credit facility, generally based upon the value of the propertiespledged to secure the facility.  Thisfacility contains various covenants including financial covenants regarding networth, interest and fixed charge coverages and consolidated leverage.  The Company and the Partnership were incompliance with all of these covenants at December 31, 2003.

 

In December 2003,the Partnership entered into $40.5 million of fixed rate, non-recourse debtwith a maturity of February 2011. The debt bears interest at a fixed rate of 5% per annum and requiresequal monthly principal and interest payments commencing in February 2004.  The secured debt is secured by deeds oftrust on six properties in two states

 

39

----

 

with an aggregate bookvalue of approximately $67 million as of December 31, 2003. The secureddebt has various covenants.  The Companyand the Partnership were in compliance with all of these covenants atDecember 31, 2003.

 

**Note 6 – Public Offering**

 

In April 2002, theCompany sold 200 shares of common stock, $0.01 par value, to an affiliate ofthe Advisor at a price of $10 per share. On April 15, 2002, the Company filed the Registration Statementwith the Securities and Exchange Commission covering a public offering of itscommon stock. The Registration Statement was declared effective onJuly 17, 2002.  The Company’scommon stock is currently being offered at a price of $10 per share on a200,000 share minimum, 25,000,000 share maximum, best-efforts basis. TheRegistration Statement also covers up to 4,000,000 shares available pursuant tothe Company’s distribution reinvestment plan and up to 1,000,000 sharesissuable upon the exercise of warrants that may be sold to broker-dealersparticipating in the offering.  Untilthe Company received subscriptions covering at least 200,000 shares from atleast 100 non-affiliated investors, offering proceeds were required to be heldin escrow.  The escrow conditions weresatisfied on February 10, 2003, at which time 226,567 shares of commonstock were issued to investors.  As ofDecember 31, 2003, approximately 12,470,400 shares of common stock wereoutstanding.

 

**Note 7 – Private Placement Memorandum**

 

The Company has developedcertain transaction structures that are designed to provide investors that ownreal property, either directly or indirectly through a limited liabilitycompany or limited partnership, with the opportunity to receive limitedpartnership units in the Partnership (“DCX Units”) in exchange for their director indirect interest in such real property on a tax-deferred its basis. Each ofthe transaction structures involves an exchange of the property then owneddirectly or indirectly by the investor by its direct owner for a replacementproperty identified by the Company in a like-kind exchange under either or bothof Sections 1031 and 721 of the Internal Revenue Code.

 

The Partnership’sissuance of DCX Units in exchange for direct or indirect interest in realproperty may provide certain investors with the opportunity to complete a realestate transaction and defer their Federal tax liability on any gain he or shewould otherwise recognize on an exchange of such interest directly for sharesof the Company’s common stock or cash until such time as the investor redeemshis or her DCX Units for shares of the Company’s common stock, or at the optionof the Company, for cash.  Each DCX Unitis intended to be the substantial economic equivalent of one share of theCompany’s common stock.

 

The Partnership will paycertain up-front fees and reimburse certain related expenses to the Advisor,Dealer Manager and Dividend Capital Exchange Facilitators LLC (the“Facilitator”) for raising capital through such transactions.  The Advisor is obligated to pay all of theoffering and marketing related costs associated with the private placement;however, the Partnership is obligated to reimburse the Advisor for such costsnot to exceed 2% of the gross proceeds raised through this Private Placement.In addition, the Partnership is obligated to pay the Dealer Manager a dealermanager fee of up to 1.5% of gross proceeds raised and a commission of up to 5%of gross proceeds raised through this Private Placement. The Dealer Manager mayre-allow such commissions to the affecting broker dealers. The Partnership paysan intellectual property licensing fee to the Facilitator of up to 1.5% ofgross proceeds raised through this Private Placement (see footnote 13).

 

DuringDecember 2003, the Company sold three separate undivided interests in oneof our buildings referred to as Chickasaw. The Company has effectively leasedback the undivided interests sold to the unrelated third parties and the leaseagreement provides for a purchase option whereby the Company may purchase eachundivided interest after a certain period of time in exchange for DCXUnits.  The proceeds received from thesale of these undivided interests totaled in aggregate, $2,695,696, which isincluded in financing obligation in the accompanying consolidated balancesheets pursuant to SFAS No. 98 “*Accounting for Leases*.” Additionally, inaccordance with SFAS No. 98, a portion of the rental payments made to thirdparties under the lease agreement must be recognized as interest expense usingthe interest method.

 

40

----

 

As of December 31,2003, the Company had incurred approximately $13,600 related to the rent dueunder the lease agreement with these third party investors. Such amounts wereincluded in interest expense in the accompanying consolidated statements ofoperations.  The following table setsforth the five year, future minimum rental payments due to third parties underthis lease agreement:

 
| The  Year Ended December 31, |   |      |      |
|-----------------------------------|--------|-----------|-----------|
| 2004                              |   | $         | 289,413   |   |
| 2005                              |   | 333,775   |      |
| 2006                              |   | 366,252   |      |
| 2007                              |   | 366,252   |      |
| 2008                              |   | 366,252   |      |
| Thereafter                        |   | 2,109,950 |      |
| Total                             |   | $         | 3,831,894 |   |

 

The Partnership paidapproximately $267,000 to the Advisor and other affiliates for affecting thesetransactions, which is included in other assets in the consolidated balancesheets.  If the Partnership elects toexercise its right to purchase back the undivided interests in exchange for theissuance of DCX Units, the unamortized up-front fees and expense reimbursementspaid to affiliates will be treated as selling cost and will reduce owners’equity.

 

**Note 8 – Subscription for Common Shares**

 

The initial proceeds ofthe offering were held in escrow until subscriptions for at least 200,000shares were received from at least 100 non-affiliated investors.  These requirements were met onFebruary 10, 2003, and at such time 226,567 of common shares were issuedto investors.  As specified in theProspectus, the net proceeds from the sale of the common stock securities weretransferred to the Partnership on a one-for-one basis for limited partnershipunits.

 

**Note 9 – Shareholders’ Equity**

 

Preferred Shares

 

The board of directors,through the articles of incorporation, has the authority to authorize theissuance of 50,000,000 preferred shares of any class or series.  The rights and terms of such preferredshares will be determined by the board of directors.  However, the voting rights of preferred shareholders shall neverexceed the voting rights of common shareholders.  As of December 31, 2003 and 2002, the Company had nooutstanding shares of preferred stock.

 

Shares-in-Trust

 

The board of directors,through the articles of incorporation, has the authority to authorize theissuance of shares-in-trust which are shares that are automatically exchangedfor common or preferred shares as a result of an event that would cause aninvestor to own, beneficially or constructively, a number of shares in excessof certain limitations.  As ofDecember 31, 2003 and 2002, the Company had no outstandingshares-in-trust.

 

Common Shares

 

The holders of commonstock are entitled to one vote per share on all matters voted on byshareholders, including election of the Company’s directors.  The articles of incorporation do not providefor cumulative voting in the election of directors.  Therefore, the holders of the majority of the outstanding commonshares can elect the entire board of directors.  Subject to any preferential rights of any outstanding series ofpreferred stock and to the distribution of specified amounts upon liquidationwith respect to shares-in-trust, the holders of common stock are entitled tosuch dividends as may be declared from time to time by the board of directorsout of legally available funds and, upon liquidation, are entitled to receiveall assets available for distribution to shareholders.  All shares issued in the Company’s publicoffering will be fully paid and non-assessable shares of common stock.  Holders of shares of common stock will nothave preemptive rights.  As ofDecember 31, 2003 and 2002, the Company had 12,470,400 and 200 shares ofcommon stock outstanding, respectively.

 

41

----

 

**Note 10 – Minority Interest**

 

Minority interestconsists of the following as of December 31, 2003 and 2002:

 
| Limited  partnership units         |   | $     | — |   |
|------------------------------------|--------|-------|--------|--------|
| Limited  partnership special units |   | 1,000 |   |
| Total                              |   | $     | 1,000  |   |

 

Limited Partnership Units

 

At December 31,2003, the Partnership was approximately 99.9% owned by the Company and 0.1% by theAdvisor. Limited partnership units are redeemable at the option of the unitholder.  The Partnership has the optionof redeeming the limited partnership units with cash or with common shares.  At inception (April 12, 2002) thePartnership issued 20,000 limited partnership units to the Advisor for grossproceeds of $200,000.  The allocation ofnet loss to the limited partnership unit holders for the period endedDecember 31, 2002, had reduced the minority interest balance to zero.  The excess loss attributable to the minorityinterest, $11,638, will be applied to future income attributable to theminority interest.

 

Limited PartnershipSpecial Units

 

During the third quarterof 2002, the Partnership issued 10,000 Special Units to an affiliate of theAdvisor for consideration of $1,000. The holders of Special Units do not participate in the profits andlosses of the Partnership.  Amountsdistributable to the holder of the Special Units will depend on operations andthe amount of net sales proceeds received from property dispositions or uponother events.  In general, after holdersof regular partnership interests have received cumulative distributions, in theaggregate, 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 thePartnership upon the disposition of the Partnership’s assets.

 

**Note 11 – Stock Option Plans and Warrants**

 

Stock Option Plans

 

The Company has adoptedan independent director stock option plan which it will use in an effort toattract and retain qualified independent directors (the “Independent DirectorOption Plan”).  The Company grantednon-qualified stock options to purchase 10,000 shares to each independentdirector pursuant to the Independent Director Option Plan upon the sale of200,000 shares in the Company’s initial offering, which occurred inFebruary 2003.  In addition, theCompany intends to issue options to purchase 5,000 shares to each independentdirector then in office on the date of each annual shareholder’s meeting.  A total of 300,000 shares are authorized andreserved for issuance under the Independent Director Option Plan.  Options may not be granted under theIndependent Director Option Plan at any time when the grant would cause thetotal number of options outstanding under the Independent Director Option Planand the Employee Option Plan to exceed 10% of the Company’s issued andoutstanding shares.  The exercise pricefor options to be issued under the Independent Director Option Plan shall bethe greater of (1) $12 per share or (2) the fair market value of the shares onthe date they are granted.    As ofDecember 31, 2003, there were 40,000 options outstanding under theIndependent Director Option Plan.  Therewere no options outstanding during 2002.

 

The Company has adoptedan employee stock option plan (the “Employee Option Plan”).  The Employee Option Plan is designed toenable the Company, the Advisor and the Property Manager to obtain or retainthe services of employees (not to include any person who is a sponsor oraffiliate of Dividend Capital Trust) considered essential to the Company’s long-termsuccess and the success of the Advisor and the Property Manager by offeringsuch employees an opportunity to participate in the growth of the Companythrough ownership of its shares.  TheEmployee Option Plan will be administered by the Compensation Committee, whichis authorized to grant “non-qualified” stock options (the

 

42

----

 

“Employee Options”) toselected employees of the Advisor and the Property Manager.  Employee Options may not be granted underthe Employee Option Plan at any time when the grant would cause the totalnumber of options outstanding under the Employee Option Plan and theIndependent Director Option Plan to exceed 10% of the Company’s issued andoutstanding shares.  The exercise pricefor the Employee Options shall be the greater of (1) $11 per share or (2) thefair market value of the shares on the date the Employee Option is granted. Atotal of 750,000 shares are authorized and reserved for issuance under theEmployee Option Plan.  The CompensationCommittee shall set the term of the Employee Options at its discretion, whichshall not exceed ten years.  TheCompensation Committee shall set the period during which the right to exercisean Employee Option vests. No Employee Option may be issued or exercised,however, if such issuance or exercise would jeopardize the Company’s status asa REIT under the Internal Revenue Code or otherwise violate the ownership andtransfer restrictions imposed under the Company’s articles of incorporation.  In addition, no Employee Option may be sold,pledged, assigned or transferred by an employee in any manner other than bywill or the laws of descent or distribution. As of December 31, 2003 and 2002, there were no options outstandingunder the Employee Option Plan.

 

Stock Warrants

 

The Company will issue tothe Dealer Manager one soliciting dealer warrant for $.001 for every 25 sharessold during the offering period subject to a maximum of 1,000,000 solicitingdealer warrants.  These warrants, as wellas the shares issuable upon their exercise, have been registered as part of theCompany’s initial offering.  The DealerManager may retain or re-allow these warrants to broker-dealers participatingin the initial offering, unless such issuance of soliciting dealer warrants isprohibited by either federal or state securities laws. The holder of asoliciting dealer warrant will be entitled to purchase one share from theCompany at a price of $12 per share during the period beginning on the firstanniversary of the effective date of the offering (July 17, 2002) andending five years after the effective date of the offering (July 16,2007). Subject to certain exceptions, a soliciting dealer warrant may not betransferred, assigned, pledged or hypothecated for a period of one yearfollowing the effective date of this offering. Exercise of the solicitingdealer warrants is governed by the terms and conditions detailed in the warrantpurchase agreement.  As of December 31,2003 and 2002, no warrants had been issued.

 

**Note 12 – Dividends**

 

The Company’s Board ofDirectors announces the following quarter’s annualized dividend before thefirst day of the quarter.  The Companywill calculate its dividends based upon daily record and dividend declaration datesso investors will be eligible to earn dividends immediately upon purchasingshares.  The Company intends to accrueand pay dividends on a quarterly basis. The following table sets forth thedividends declared by our Board of Directors and the dividends that have beenpaid to date:

 
| **Quarter**       |   | **Amount  Declared(1)** |   | **Date Paid** |                    |
|-------------------|--------|-------------------------|--------|---------------|-------------------------|
| 2nd  Quarter-2003 |   | $                       | 0.1558 |          | July 15,  2003     |   |
| 3rd  Quarter-2003 |   | $                       | 0.1575 |          | October 15,  2003  |   |
| 4th  Quarter-2003 |   | $                       | 0.1575 |          | January 15,  2004  |   |
| 1st  Quarter-2004 |   | $                       | 0.1591 |          | April 15,  2004(2) |   |

 

----

(1)          Assumes share was ownedfor the entire quarter

(2)          Anticipated payment date

 

Distributions toshareholders are characterized for federal income tax purposes (which differsfrom GAAP), as ordinary income, capital gains, non-taxable return of capital ora combination of the three. Distributions that exceed the Company’s current and accumulated earningsand profits (calculated for tax purposes) constitute a return of capital fortax purposes rather than a dividend and reduce the shareholders’ basis in the commonshares.  To the extent that adistribution exceeds both current and accumulated earnings and profits and theshareholders’ basis in the common shares, it will generally be treated as again from the sale or exchange of that shareholder’s common shares.   The Company annually notifies shareholdersof the taxability of distributions paid during the preceding year.

 

43

----

 

The following summarizesthe taxability of distributions on common shares for the year endedDecember 31, 2003:

 
| Per  Common Share: |   |   |   |
|--------------------|--------|--------|--------|
| Ordinary  Income   |   | 39.8   | %      |
| Capital  Gains     |   | 0.0    | %      |
| Return  of Capital |   | 60.2   | %      |
| Total              |   | 100.0  | %      |

 

**Note 13 – Related Party Transactions**

 

*Advisory Agreement*

 

The Company has enteredinto the Advisory Agreement with the Advisor pursuant to which the Company willpay certain acquisition and asset management fees to the Advisor.  The Advisor is considered a related party ascertain indirect owners and employees of the Advisor serve as executives of theCompany.  The amount of such acquisitionfees shall equal up to 3% of the aggregate purchase price of all propertiesacquired by the Company up to a cumulative amount of $170 million.  The Company will pay an amount equal to 1%of the purchase price to the Advisor for all acquisitions made after acquiringthe initial $170 million in properties. The Company will pay the Advisor an asset management fee equal to 0.75%per annum of the total value of the properties owned by the Company in excessof $170 million.

 

The Company will beresponsible for the payment of all organization and offering expenses not toexceed 3% of the initial $100 million gross offering proceeds and up to 2% ofgross offering proceeds thereafter.  TheAdvisor has incurred approximately $12.5 million of organization and offeringexpenses as of December 31, 2003 of which the Company has reimbursed theAdvisor approximately $3.3 million.  Ifthe Company is not successful in raising additional amounts of equity proceeds,no additional amounts will be payable by the Company.

 

The Advisor is obligatedto reimburse the Company for the amount by which operating expenses (as definedin the Advisory Agreement) of the Company exceed the greater of 2% of AverageInvested Assets or 25% of Net Income (as such terms are defined in the AdvisoryAgreement) for a twelve-month period to be measured each fiscal quarter (the“2%/25% Guidelines). If in any twelve month period the operating expenses ofthe Company exceed the 2%/25% Guidelines, the Advisor will have an obligation toreimburse the Company for such excess, subject to certain conditions. If theIndependent Directors find that such expenses were justified based on anyunusual and nonrecurring factors which they deem sufficient, the Advisor may bereimbursed in future periods for the full amount or any portion of such excessexpense, but only to the extent that such reimbursement would not cause theCompany’s operating expense to exceed the 2%/25% Guidelines in any suchyear.  As of December 31, 2003, theCompany’s operating expenses did not exceed the 2%/25% Guideline.

 

*Dealer Manager Agreements*

 

The Company has enteredinto a dealer manager agreement with the Dealer Manager pursuant to which theCompany will pay up to 2.5% of the initial $100 million of gross offering proceedsand up to 2% of gross proceeds raised thereafter 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 the initial $100 million ofgross offering proceeds and up to 6% thereafter.  The Dealer Manager has indicated that all of the salescommissions are expected to be paid to participating broker-dealers who areresponsible for effecting sales.

 

The Company has alsoentered into a dealer manager agreement with the Dealer Manager pursuant towhich the Company will pay up to 1.5% of the gross proceeds raised through thePartnership’s Private Placement. The Company will also pay a sales commissionup to 5.0% of the gross proceeds raised through the Private placement.

 

As of December 31,2003, the Company had paid the Dealer Manager approximately $11.1 million.  The Company did not pay any commissions ordealer manager fees to the Dealer Manager during 2002.

 

44

----

 

**Note 14 – Comprehensive Income**

 

There are no adjustmentsnecessary to net income (loss) as presented in the accompanying consolidatedstatement of operations to derive comprehensive income in accordance with SFASNo. 130, *Reporting Comprehensive Income*.

 

**Note 15 – Income Taxes**

 

During 2002, the Companywas taxed as a C corporation for federal and state purposes.  For 2002, the Company recognized nominaltaxable income and was obligated to pay a nominal amount of federal and stateincome tax.  During 2003, the Companyoperated and expects to continue to operate in a manner to meet all therequirements to qualify for REIT status and will make an election underInternal Revenue Code Section 856 for the taxable year endedDecember 31, 2003.  In order for aformer C 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 it’sconversion 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 100% 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 accompanyingconsolidated financial statements.

 

**Note 16 – Commitments and Contingencies**

 

In connection with ourprivate placement memorandum (see note 7), the Company has and may continue toenter into a series of transactions whereby DCX Units may ultimately be issued.During December 2003, the Company sold, through three transactions,certain undivided interests in one of our buildings referred to as Chickasaw.The Company has effectively leased back the undivided interests sold to theunrelated third parties and the lease agreement provides for a purchase optionwhereby the Company may purchase the undivided interest after a certain periodin exchange for DCX Units, or at the option of the Company, cash.

 

**Note 17 – Subsequent Event**

 

On February 10, 2004,the Company amended and restated the Credit Facility to facilitate itssyndication among a bank group led by Bank One, NA as administrative agent andlead arranger.  Compass Bank, KeybankNational Association and U.S. Bank National Association also extendedcommitments under the facility.  Theamendment increased the commitment under the facility to $82.5 million withprovisions that could increase the facility to $200 million. In addition, thecredit facility’s maturity date was extended to February 10, 2007.

 

45

----

 

**Note 18– Quarterly Results (Unaudited)**

 

The following tablepresents selected unaudited quarterly financial data for each quarter duringthe year ended December 31, 2003:

 
|                                   |   | **For the  Quarter Ended** |    | **For the  Year Ended** |   |
|----------------------------------------|--------|----------------------------|---------|-------------------------|--------|
|                                   |   | **March 31,  2003**   |    | **June 30,  2003** |   | **September 30,  2003** |   | **December 31,  2003** |   | **December 31,  2003** |   |
|                                   |   |                       |    |                    |   |   |   |   |   |   |   |
| Rental  revenue                        |   | $                          | —  |                    | $      | 117,596 |   | $ | 842,519 |   | $ | 1,328,959 |   | $ | 2,289,074 |   |
| Other  income                          |   | 834                        |    | 39,088                  |   | 10,828 |   | 366,633 |   | 417,383 |   |
| Total  income                          |   | 834                        |    | 156,684                 |   | 853,347 |   | 1,695,592 |   | 2,706,457 |   |
| Rental  expenses                       |   | —                     |    | —                  |   | 88,978 |   | 277,672 |   | 366,650 |   |
| Depreciation  and amortization expense |   | —                     |    | 68,604                  |   | 359,787 |   | 766,939 |   | 1,195,330 |   |
| Interest  expense                      |   | —                     |    | 26,278                  |   | 137,985 |   | 221,161 |   | 385,424 |   |
| General  and administrative expenses   |   | 72,450                     |    | 33,258                  |   | 117,787 |   | 188,453 |   | 411,948 |   |
| Net  income (loss)                     |   | $                          | (71,616 | )                       | $      | 28,544 |   | $ | 148,810 |   | 241,367 |   | 347,105 |   |
| Earnings  (loss) per common share:     |   |                       |    |                    |   |   |   |   |   |   |   |
| Basic  and diluted                     |   | $                          | (0.27   | )                       | $      | 0.02 |   | $ | 0.03 |   | $ | 0.03 |   | $ | 0.09 |   |
|                                   |   |                       |    |                    |   |   |   |   |   |   |   |
| Basic  common shares outstanding       |   | 261,496                    |    | 1,809,351               |   | 4,393,069 |   | 9,356,610 |   | 3,987,429 |   |
|                                   |   |                       |    |                    |   |   |   |   |   |   |   |
| Diluted  common shares outstanding     |   | 261,496                    |    | 1,829,351               |   | 4,413,069 |   | 9,376,610 |   | 4,007,429 |   |

 

The following tablepresents selected unaudited quarterly financial data for each quarter duringthe period ended December 31, 2002:

 
|                               |   | **For the  Quarter Ended  June 30,  2002** |    | **For the  Quarter Ended  September 30,  2002** | ** ** | **For the  Quarter Ended  December 31,  2002** | ** ** | **For the  Period Ended  December 31,  2002** | ** ** |
|------------------------------------|--------|-------------------------------------------------|---------|------------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
|                               |   |                                            |    |                                                 |       |                                                |       |                                               |       |
| Net  loss before minority interest |   | $                                               | (13,300 | )                                                    | $          | (17,500                                             | )          | $                                                  | (181,912   | ) | $ | (212,712 | ) |
| Minority  interest                 |   | —                                          |    | —                                               |       | 200,000                                             |       | 200,000                                            |       |
| Net  income (loss)                 |   | $                                               | (13,300 | )                                                    | (17,500    | )                                                   | 18,088     |                                               | (12,712    | ) |
| Earnings  (loss) per common share: |   |                                            |    |                                                 |       |                                                |       |                                               |       |
| Basic  and diluted                 |   | $                                               | (66.50  | )                                                    | $          | (87.50                                              | )          | $                                                  | 90.44      |   | $ | (63.56 | ) |
|                               |   |                                            |    |                                                 |       |                                                |       |                                               |       |
| Basic  common shares outstanding   |   | 200                                             |    | 200                                                  |       | 200                                                 |       | 200                                                |       |
|                               |   |                                            |    |                                                 |       |                                                |       |                                               |       |
| Diluted  common shares outstanding |   | 200                                             |    | 200                                                  |       | 200                                                 |       | 200                                                |       |
|                                    |        |                                                 |         |                                                      |            |                                                     |            |                                                    |            |  |  |  |  |  |

 

The Company allocatedminority interest for the entire period from inception (April 12, 2002) toDecember 31, 2002 in the quarter ended December 31, 2002 based onadditional information obtained throughout the period.  If minority interest was allocated eachquarter, the Company would have realized a $12,404 loss, or $62.02 per shareduring the quarter ended December 31, 2002.

 

46

----

 

**IndependentAuditors’ Report on Schedule**

 

 

The Board of DirectorsDividend Capital Trust Inc.:

 

Under date of February 10, 2004, we reported on the consolidatedbalance sheets of Dividend Capital Trust Inc. as of December 31, 2003 and 2002,and the related consolidated statements of operations, shareholders’ equity (deficit),and cash flows for the year ended December 31, 2003 and the period frominception (April 12, 2002) to December 31, 2002, which are included in theCompany’s annual report on Form 10-K for the year ended December 31, 2003. Inconnection with our audits of the aforementioned financial statements, we alsoaudited the related schedule III. This schedule is the responsibility of theCompany’s management. Our responsibility is to express an opinion on thisschedule based on our audits.

 

In our opinion, such schedule, when considered in relation to the basicfinancial statements taken as a whole, presents fairly, in all materialrespects, the information set forth therein.

** **

** **

**KPMGLLP**

 

 

Denver, ColoradoFebruary 10, 2004

 

47

----

 

**SCHEDULEIII****- REAL ESTATE AND ACCUMULATED DEPRECIATION**

**December 31, 2003**

 
| **Property**      |   | **Location**                         |     | **No. of  Bldgs** |                                 | **Encumbrances** |            | **Initial Cost to Company** |       | **Costs  Capitalized  Subsequent  to Acquisition** |        | **Gross Amount Carried at  12/31/2003** |   | **Accumulated  Depreciation** |       | **Acquisition  Date** |        |
|-------------------|--------|--------------------------------------|----------|-------------------|--------------------------------------|------------------|-----------------|-----------------------------|------------|----------------------------------------------------|-------------|-----------------------------------------|--------|-------------------------------|------------|-----------------------|-------------|
| **Land**          |   | **Building &  Improvements (a)** | **Land** |              | **Building &  Improvements (a)** |             | **Total Costs** |
|              |   |                                 |     |              |                                 |             |            |                        |       |                                               |        |                                    |   |                          |       |                  |        |   |   |   |   |   |   |
| Nashville         |   | Nashville,  TN                       |     | 1                 |                                 | $                | —          |                        | 2,544,999  |                                               | 21,938,672  |                                    | — |                          | 2,544,999  |                  | 21,938,672  |   | 24,483,671 |   | (480,224 | ) | 06/09/03 |   |
|              |   |                                 |     |              |                                 |             |            |                        |       |                                               |        |                                    |   |                          |       |                  |        |   |   |   |   |   |   |
| Chickasaw         |   | Memphis,  TN                         |     | 2                 |                                 | —           |            | 1,140,561                   |       | 13,779,870                                         |        | —                                  |   | 1,140,561                     |       | 13,779,870            |        | 14,920,431 |   | (359,926 | ) | 07/22/03 |   |
|              |   |                                 |     |              |                                 |             |            |                        |       |                                               |        |                                    |   |                          |       |                  |        |   |   |   |   |   |   |
| Rancho            |   | Rancho  Cucamonga, CA                |     | 1                 |                                 | —           |            | 2,789,574                   |       | 7,002,354                                          |        | —                                  |   | 2,789,574                     |       | 7,002,354             |        | 9,791,928 |   | (79,393 | ) | 10/16/03 |   |
|              |   |                                 |     |              |                                 |             |            |                        |       |                                               |        |                                    |   |                          |       |                  |        |   |   |   |   |   |   |
| Mallard Lake      |   | Hanover  Park, IL                    |     | 1                 |                                 | 1,000,000        |            | 2,561,328                   |       | 8,808,242                                          |        | —                                  |   | 2,561,328                     |       | 8,808,242             |        | 11,369,570 |   | (54,861 | ) | 10/29/03 |   |
|              |   |                                 |     |              |                                 |             |            |                        |       |                                               |        |                                    |   |                          |       |                  |        |   |   |   |   |   |   |
| West by Northwest |   | Houston,  TX                         |     | 1                 |                                 | —           |            | 1,033,352                   |       | 7,563,574                                          |        | —                                  |   | 1,033,352                     |       | 7,563,574             |        | 8,596,926 |   | (71,334 | ) | 10/30/03 |   |
|              |   |                                 |     |              |                                 |             |            |                        |       |                                               |        |                                    |   |                          |       |                  |        |   |   |   |   |   |   |
| DFW               |   | Dallas,  TX                          |     | 1                 |                                 | 6,860,760        |            | 980,666                     |       | 10,381,628                                         |        | —                                  |   | 980,666                       |       | 10,381,628            |        | 11,362,294 |   | (31,208 | ) | 12/15/03 |   |
|              |   |                                 |     |              |                                 |             |            |                        |       |                                               |        |                                    |   |                          |       |                  |        |   |   |   |   |   |   |
| Pinnacle          |   | Dallas,  TX                          |     | 2                 |                                 | 17,778,723       |            | 1,587,762                   |       | 27,838,070                                         |        | —                                  |   | 1,587,762                     |       | 27,838,070            |        | 29,425,832 |   | (62,870 | ) | 12/15/03 |   |
|              |   |                                 |     |              |                                 |             |            |                        |       |                                               |        |                                    |   |                          |       |                  |        |   |   |   |   |   |   |
| Park West         |   | Cincinnnati,  OH                     |     | 3                 |                                 | 15,860,517       |            | 3,348,000                   |       | 22,893,585                                         |        | —                                  |   | 3,348,000                     |       | 22,893,585            |        | 26,241,585 |   | (46,692 | ) | 12/15/03 |   |
|              |   |                                 |     |              |                                 |             |            |                        |       |                                               |        |                                    |   |                          |       |                  |        |   |   |   |   |   |   |
| Plainfield        |   | Plainfield,  IN                      |     | 1                 |                                 | —           |            | 1,394,147                   |       | 14,259,728                                         |        | —                                  |   | 1,394,147                     |       | 14,259,728            |        | 15,653,875 |   | (26,254 | ) | 12/22/03 |   |
|              |   |                                 |     |              |                                 |             |            |                        |       |                                               |        |                                    |   |                          |       |                  |        |   |   |   |   |   |   |
| GRAND TOTAL       |   |                                 |     | 13                |                                 | $                | 41,500,000      |                        | 17,380,389 |                                               | 134,465,723 |                                    | — |                          | 17,380,389 |                  | 134,465,723 |   | 151,846,112 |   | (1,212,762 | ) |   |   |

 

----

(a) Included in Total Building and Improvementsare 14,402,878 of intangible lease assets.

 

48

----

 

** **
| **ITEM 9****.** | **CHANGES IN AND DISAGREEMENTS WITH  ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE** |
|-----------------|-------------------------------------------------------------------------------------------|

 

None.

 
| **ITEM 9A.** | **CONTROLS AND PROCEDURES** |
|--------------|-----------------------------|

 

Within the 90-day periodprior to the filing of this report, an evaluation was carried out under thesupervision and with participation of Company management, including theCompany’s Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the Company’s disclosure controls and procedures (as definedin Rule 13a-14(c) and 15-14(c) under the Securities Exchange Act of 1934).Based on their evaluation, the Company’s Chief Executive Officer and ChiefFinancial Officer have concluded that disclosure controls and procedures areeffective to ensure that information required to be disclosed by the Company inreports that it files or submits under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in Securities andExchange Commission rules and forms. Subsequent to the date of theirevaluation, there were no significant changes in the Company’s internalcontrols or in other factors that could significantly affect these controls,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

49

----

 

**PARTIII**

 
| **ITEM  10****.** | **DIRECTORS AND EXECUTIVE OFFICERS OF  THE REGISTRANT** |
|-------------------|---------------------------------------------------------|

 

The directors andexecutive officers of the Company, their ages and their positions and officesare as follows:

 
| **Name**              |   | **Age** |   | **Position**                                                |
|-----------------------|--------|---------|--------|-------------------------------------------------------------|
| Thomas G. Wattles     |   | 52      |   | Chairman and  Director                                      |
| Evan H. Zucker        |   | 38      |   | Chief Executive  Officer, President, Secretary and Director |
| James R. Mulvihill    |   | 39      |   | Chief Financial  Officer, Treasurer and Director            |
| Tripp H. Hardin       |   | 42      |   | Director                                                    |
| Robert F. Masten      |   | 54      |   | Director                                                    |
| John C. O’Keeffe |   | 44      |   | Director                                                    |
| Lars O. Soderberg     |   | 44      |   | Director                                                    |

 

*Thomas G. Wattles*,age 52, is the Chairman, Chief Investment Officer and a director of DividendCapital Trust and is a manager and Chief Investment Officer of Dividend CapitalAdvisors and a manager of Dividend Capital Property Management.  Mr. Wattles is a principal of Black CreekCapital, LLC which he joined in February 2003.  From November 1993 to March 1997, Mr. Wattles served asCo-Chairman and Chief Investment Officer of ProLogis Trust (NYSE: PLD), andserved as Chairman between March 1997 and May 1998.  Mr. Wattles was a Managing Director ofSecurity Capital Group Incorporated (“Security Capital Group”) and was withSecurity Capital Group in various capacities including Chief Investment Officerfrom January 1991 to December 2002. Mr. Wattles is a director of Regency Centers (NYSE: REG) and chairs theInvestment Committee.  Mr. Wattles holdsa Bachelor’s degree and an MBA degree from Stanford University.

 

*Evan H. Zucker,*age 38, is the President, Secretary and a director of Dividend Capital TrustInc.  Mr. Zucker is also a manager ofboth Dividend Capital Advisors and Dividend Capital Property Management.  Mr. Zucker is a principal of Black CreekCapital, LLC, a Denver-based real estate investment firm which he co-founded in1993.  Mr. Zucker has been active inreal estate acquisition, development and redevelopment activities since 1989and as of December 2002, with Mr. Mulvihill and other affiliates hasoverseen directly, or indirectly through affiliated entities, the acquisition,development, redevelopment, financing and sale of approximately 75 real estateprojects with an aggregate value in excess of approximately $503 million.  In 1993 Mr. Zucker co-founded American RealEstate Investment Corp. (now known as Keystone Property Trust, NYSE:  KTR), which is currently an industrial andlogistics REIT.  Mr. Zucker served asthe President and as a director of American Real Estate Investment Corp. from1993 through 1997 and as a director of Keystone Property Trust from 1997through 1999.  Mr. Zucker graduated fromStanford University with a Bachelor’s degree in Economics.

 

*James R. Mulvihill,*age 39, is the Treasurer, Chief Financial Officer and a director of DividendCapital Trust.  Mr. Mulvihill is also amanager of both Dividend Capital Advisors and Dividend Capital PropertyManagement. Mr. Mulvihill is a principal of Black Creek Capital, LLC, aDenver-based real estate investment firm which he co-founded in 1993.  He is also a co-founder and Chairman of theBoard of Corporate Properties of the Americas (“CPA”).  CPA, a joint venture between an affiliate ofBlack Creek Capital and Equity International Properties (a Sam Zell controlledinvestment company), is a fully-integrated industrial real estate company thatacquires, develops and manages industrial properties throughout Mexico.  To date, CPA has developed and or acquiredover 7 million square feet of industrial buildings and developed two industrialparks totaling over 500 acres.  Mr.Mulvihill has been active in real estate acquisition, development andredevelopment activities since 1992 and as of December 2002, with Mr. Zuckerand other affiliates has overseen directly, or indirectly through affiliatedentities, the acquisition, development, redevelopment, financing and sale ofapproximately 75 real estate projects with an aggregate value in excess ofapproximately $503 million.  In 1993 Mr.Mulvihill co-founded American Real Estate Investment Corp. (now known asKeystone Property Trust, NYSE: KTR) which is currently an industrial andlogistics REIT.  Mr. Mulvihill served asits Chairman and as a director from 1993 through 1997 and as a director ofKeystone Property Trust from 1997 through 2001.  Prior to co-founding Black Creek Capital, Mr. Mulvihill served asVice President of the Real Estate Banking and Investment Banking Groups ofManufacturer’s Hanover and subsequently Chemical Bank, where hisresponsibilities included real estate syndication efforts, structured debtunderwritings and

 

50

----

 

leveraged buyout realestate financings.  Mr. Mulvihill holdsa Bachelor’s degree from Stanford University in Political Science.

 

*Independent Directors*

 

*Tripp H. Hardin,*age 42, is an independent director of Dividend Capital Trust.  Mr. Hardin is a Vice President of Grubb& Ellis, and he has been active in real estate activities since 1984,focusing primarily on the sale and leasing of industrial, office and commercialproperties.  He has also been active inreal estate investment and build-to-suit transactions.  Mr. Hardin graduated from Stanford Universitywith a Bachelor of Science Degree.

 

*Robert F. Masten,*age 54, is an independent director of Dividend Capital Trust.  Mr. Masten has been active in commercialreal estate transactions and title insurance matters since 1972.  Since 1993 he has been a Senior VicePresident of North American Title Company, Denver, Colorado, where he hasprovided title insurance for commercial real estate transactions.  Prior to joining North American TitleCompany he was with Land Title Guaranty Company for 16 years.  Before joining Land Title, Mr. Mastenleased, managed and sold properties for 33 different syndicates for which Perry& Butler was the general partner. Mr. Masten graduated from the University of Colorado with a DoctorateDegree in Arts and Sciences.

 

*John C. O’Keeffe,*age 44, is an independent director of Dividend Capital Trust.  Mr. O’Keeffe has been active in real estateconstruction activities since 1987. Since 1987 he has served as a project manager for Wm. Blanchard Co.,Springfield, New Jersey, where he has been responsible for the construction oflarge healthcare projects.  Mr. O’Keeffegraduated from Denison University with a Bachelor’s Degree in EnglishLiterature.

 

*Lars O. Soderberg,*age 44, is an independent director of Dividend Capital Trust.  Mr. Soderberg has been employed by JanusFunds since 1995.  He is currently aVice President and Managing Director of Janus Institutional Services, where heis responsible for the development, marketing and distributions of Janus’investment products to the institutional market place.  Prior to joining Janus, Mr. Soderberg wasemployed by Fidelity Investments for approximately 14 years.  He is Treasurer and a member of the Board ofDirectors of the National Defined Contribution Council and a member of theAssociation of Investment Management Sales Executives.  Mr. Soderberg graduated from DenisonUniversity with a Bachelor of Arts Degree in History.

 

On March 31, 2003,the Company’s Board of Directors accepted the resignation of John Blumberg as adirector of the Company and as a member of the Audit Committee and theresignation of Michael Dana as a director of the Company and as a member of theCompensation Committee.  Also onMarch 31, 2003, Thomas G. Wattles was appointed as a director of theCompany and as the Chairman of the Board of Directors.  Lars O. Soderberg was appointed to the CompensationCommittee on March 31, 2003.

 

**Code of Ethics**

 

Our board of directorshas adopted a Code of Ethics which applies to our directors and executiveofficers.  A copy of the Code of Ethicsis attached as an exhibit to this report.

 

**ITEM 11****.****                              EXECUTIVECOMPENSATION**

 

The Company currently hasno paid employees.  Day-to-daymanagement functions are performed by the Advisor, and related affiliates.

 

The Company’s executiveofficers are all employees of the Advisor. The Company does not pay any ofthese individuals for serving in their respective positions. For a discussionof fees paid to the Advisor and other affiliated companies, see “CertainRelationships and Related Transactions” below.

 

On February 25,2004, the board of directors approved a change in the amount paid to theindependent directors. Before the change in compensation the Company paid eachof its independent directors $2,500 per quarter plus $1,000 for each boardmeeting attended and $500 for each committee meeting attended.  Effective February 25, 2004, thecompensation paid to the independent directors will be $5,000 per quarter plus$1,000 for each board meeting or committee meeting attended.  All directors receive reimbursement ofreasonable out-of-pocket expenses incurred in

 

51

----

 

connection withattendance at meetings of the board of directors. If a director also is anofficer of the Company, no separate compensation is paid for services renderedas a director.

 

The Company has alsoadopted the Independent Director Option Plan and the Employee Option Plan.  See “Market for Common Stock and relatedShareholder Matters” above.  As ofDecember 31, 2003, there were 40,000 options outstanding under theIndependent Director Option Plan and there were no options outstanding underthe Employee Option Plan.

 
| **Plan Category**                                              |   | **Number of  securities to  be issued upon exercise  of outstanding options,  warrants and rights** |   | **Weighted  average  exercise price of  outstanding options,  warrants and rights** |   | **Number of  securities  remaining available for  future issuance under  equity compensation  plans (excluding  securities reflected in  column (a))** |      |
|----------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|
|                                                           |   | **(a)**                                                                                             |   | **(b)**                                                                             |   | **(c)**                                                                                                                                                |      |
| Equity  compensation plans approved by security holders        |   |                                                                                                |   |                                                                                |   |                                                                                                                                                   |      |
| Equity  compensation plans not approved by security holders(1) |   | 40,000                                                                                              |   | $                                                                                   | 12.00  | (2)                                                                                                                                                    | 2,010,000 |   |
| Total                                                          |   | 40,000                                                                                              |   | $                                                                                   | 12.00  |                                                                                                                                                   | 2,010,000 |   |

 

----

(1)Represents theCompany’s Independent Director Option Plan, for which 40,000 out of anauthorized 300,000 shares are outstanding; the Company’s Employee Stock OptionPlan, of which none of the authorized 750,000 shares are outstanding; anddealer warrants available to Dealer Managers, of which none of the authorized1,000,000 warrants have been issued.

 

(2)Calculated as thegreater of (1) $12.00 per share or (2) the fair market value of the shares onthe date they are granted.

 

During 2003 and 2002, theCompany’s independent board of directors received compensation in the aggregateamount of $22,500 and $58,500, respectively. Approximately $15,000 and $58,500 was accrued as of December 31,2003 and 2002, respectively, related to compensation to the independent boardof directors.

 

52

----

 
| **ITEM  12****.** | **SECURITY OWNERSHIP OF CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS** |
|-------------------|-----------------------------------------------------------------------------------------------------|

 

The following table setsforth information as of March 15, 2004 regarding the number and percentageof shares beneficially owned by: (i) each director; (ii) each executiveofficer; (iii) all directors and executive officers as a group; and (iv) as ofMarch 15, 2004, any person known to the Company to be the beneficial ownerof more than 5% of the shares issued and outstanding.

 
| **Name of Beneficial Owner**                           |   | **Number of Shares  Beneficially  Owned (1)** |   | **Percent  of Class** |
|--------------------------------------------------------|--------|-----------------------------------------------|--------|-----------------------|
| Evan H. Zucker (Director and Chief Executive  Officer) |   | 200                                           |   | *                     |
| All director and officers as a group                   |   | 200                                           |   | *                     |

 

----

* Less than 1%

 

(1) Beneficial ownershipincludes outstanding shares and shares that any person has the right to acquirewithin 60 days after the date of this table. Except as pursuant to applicablecommunity property laws, the persons named in the table have sole voting andinvestment power with respect to all shares beneficially owned by them.

 
| **ITEM  13****.** | **CERTAIN RELATIONSHIPS AND RELATED  TRANSACTIONS** |
|-------------------|-----------------------------------------------------|

 

**Advisory Agreement**

 

The Company has enteredinto the Advisory Agreement with the Advisor pursuant to which the Company willpay certain acquisition and asset management fees to the Advisor.  The Advisor is considered a related party ascertain indirect owners and employees of the Advisor serve as executives of theCompany.  The amount of such acquisitionfees shall equal up to 3% of the aggregate purchase price of all propertiesacquired by the Company up to a cumulative amount of $170 million.  The Company will pay 1% to the Advisor forall acquisitions made after acquiring the initial $170 million inproperties.  The Company will pay theAdvisor an asset management fee equal to 0.75% per annum of the total value ofthe properties owned by the Company in excess of $170 million.

 

The Company will beresponsible for the payment of all organization and offering expenses not toexceed 3% of the initial $100 million gross offering proceeds and up to 2% ofgross offering proceeds thereafter.  TheAdvisor has incurred approximately $12.5 million of organization and offeringexpenses as of December 31, 2003 of which the Company has reimbursed theAdvisor approximately $3.3 million.  Ifthe Company is not successful in raising additional amounts of equity proceeds,no additional amounts will be payable by the Company.

 

The Advisor is obligatedto reimburse the Company for the amount by which operating expenses (as definedin the Advisory Agreement) of the Company exceed the greater of 2% of AverageInvested Assets or 25% of Net Income (as such terms are defined in the AdvisoryAgreement) for a twelve-month period to be measured each fiscal quarter (the“2%/25% Guidelines). If in any twelve month period the operating expenses ofthe Company exceed the 2%/25% Guidelines, the Advisor will have an obligationto reimburse the Company for such excess, subject to certain conditions. If theIndependent Directors find that such expenses were justified based on anyunusual and nonrecurring factors which they deem sufficient, the Advisor may bereimbursed in future periods for the full amount or any portion of such excessexpense, but only to the extent that such reimbursement would not cause theCompany’s operating expense to exceed the 2%/25% Guidelines in any such year.  As of December 31, 2003, the Company’soperating expenses did not exceed the 2%/25% Guideline.

 

**Dealer Manager Agreement**

 

The Company has enteredinto a dealer manager agreement with the Dealer Manager pursuant to which theCompany will pay up to 2.5% of the initial $100 million of gross offeringproceeds and up to 2% of gross proceeds

 

53

----

 

raised thereafter to theDealer Manager as compensation for managing the offering.  The Dealer Manager may re-allow a portion ofsuch fees to broker-dealers who participate in the offering.  The Company will also pay a 7% salescommission on the initial $100 million of gross offering proceeds and up to 6%thereafter (except that the selling commission may remain at up to 7% where thepurchaser elects to pay a deferred commission).  The Dealer Manager has indicated that all of the salescommissions are expected to be paid to participating broker-dealers who areresponsible for effecting sales.

 

The Company has alsoentered into a dealer manager agreement with the Dealer Manager pursuant towhich the Company will pay up to 1.5% of the gross proceeds raised through thePartnership’s Private Placement. The Company will also pay a sales commissionup to 5.0% of the gross proceeds raised through the Private placement.

 

As of December 31,2003, the Company had paid the Dealer Manager approximately $11,336,000.  The Company did not pay any amount to theDealer Manager during 2002.

 

**Property Management Agreement**

 

The Company has enteredinto a property management agreement with the Property Manager pursuant towhich the Company will pay certain property management and leasing fees to theProperty Manager.  The amount of suchfees shall not exceed the lesser of 3% of the gross revenues or 0.6% of the netasset value (as defined in the property management agreement) of propertiesowned by the Company.  The Company mayalso pay a separate fee for the one-time lease-up of newly-constructedproperties in an amount not to exceed the fee customarily charged in arm’slength transactions.  As ofDecember 31, 2003, the Company had not paid the Property Manager anyproperty management or leasing fees.

 

The Company may pay realestate commissions to the Advisor or its affiliates in connection with the saleof properties by the Company.  Suchcommissions shall not exceed the lesser of 50% of the reasonable, customary andcompetitive real estate brokerage commission paid for the sale of comparableproperty or 3% of the contract price. The payments of such commissions are deferred until distributions toinvestors equal 100% of their capital contributions plus a 7% cumulativenon-compounded return on their net contributions.  As of December 31, 2003, the Company had not paid any realestate commissions to the Property Manager.

 

**ITEM14****.****                              PRINCAPLEACCOUNTANT FEES AND SERVICES**

 

**Audit Fees**

 

The Company engaged KPMGLLP to perform the annual audit and related quarterly reviews for the yearsended December 31, 2002 and 2003. The fees incurred by the Company relatedto these audits and reviews were $46,000 and $38,500, respectively, for the2002 and 2003 annual audits and quarterly reviews.

 

In addition to the annualaudits, KPMG LLP also has performed various property audits pursuant to Rule3-14.  The fees incurred for suchservices totaled $67,250 for the year ended December 31, 2003. There wereno fees incurred in 2002 related to property audits pursuant to Rule 3-14.

 

**Audit-Related Fees**

 

In addition to the annualaudit, KPMG LLP also performed other audit-related services reviews of certainregistration statements and post-effective amendments to such registrationstatements, as well as other work in connection with other SEC filings.   The total fees incurred in 2003 for theseservices totaled $57,485 and none were incurred in 2002.

 

**Tax Fees and All Other Fees**

 

The Company has notengage KPMG LLP to perform any tax related services or other services outsidethe scope of services discussed above.

 

54

----

 

**Audit Committee’s Pre-approval Policies**

 

The audit committee shallhave the ultimate authority and responsibility to select, evaluate and, whenwarranted, replace independent public accountants (or to recommend suchreplacement for shareholder approval in any proxy statement, if applicable).  The audit committee shall approve the feesand other compensation to be paid to the independent public accountants.  The audit committee shall be primarilyresponsible for monitoring the independence and performance of the Company’sindependent public accountants.  Theindependent public accountants shall be ultimately accountable to the Board ofDirectors and the audit committee.

 

In discharging itsoversight role, the audit committee has the power to conduct or to authorizeinvestigations into any matter brought to its attention with full access to allbooks, records, facilities, and personnel of the Company, including theindependent auditors.  The auditcommittee shall have the resources and authority appropriate to discharge itsduties and responsibilities.

 

In addition, the auditcommittee shall review the independent public accountants audit plan andengagement letter which discusses the scope, staffing, locations, reliance uponmanagement and internal audit and general audit approach.  The audit committee shall also review thescope of non-audit services performed for the Company by the independentauditors and approve any significant non-audit relationship with theindependent auditors.

 

The audit committee hasapproved all the audit and audit related work conducted by KPMG LLP in 2002 and2003. Additionally, the audit committee has approved KPMG LLP to perform the2004 quarterly reviews, review of related registration statements and thenecessary property audits to comply with Rule 3-14.

 

55

----

 

**PARTIV**

 

**ITEM 15****.****                              EXHIBITS,FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K**

 
| **Date Filed**          |   | **Date of Report**      |   | **Form** |   | **Reporting**                                                                        |
|-------------------------|--------|-------------------------|--------|----------|--------|--------------------------------------------------------------------------------------|
|                    |   |                    |   |     |   |                                                                                 |
| April 1,  2003     |   | April 1,  2003     |   | 8-K      |   | Declaration of  Second Quarter Dividend                                              |
| June 10,  2003     |   | June 25,  2003     |   | 8-K      |   | Acquisition of  Nashville Facility                                                   |
| July 22,  2003     |   | August 5,  2003    |   | 8-K      |   | Acquisition of  Chickasaw Distribution Facilities                                    |
| June 22,  2003     |   | October 3,  2003   |   | 8-K/A    |   | Provide  financial statements for Chickasaw acquisition                              |
| October 16,  2003  |   | October 22,  2003  |   | 8-K      |   | Acquisition of  Rancho Technology Park and notice of Special Meeting of Shareholders |
| October 29,  2003  |   | November 12,  2003 |   | 8-K      |   | Acquisition of  Mallard Lake and West by Northwest Distribution Facilities           |
| November 21,  2003 |   | November 26,  2003 |   | 8-K      |   | Notice of action  taken by Special Shareholder Meeting                               |
| December 15,  2003 |   | December 30,  2003 |   | 8-K      |   | Acquisition of  Park West, Pinnacle, DFW and Plainfield Distribution Facilities      |

 
| **Exhibit Number** |   | **Description**                                                                                                                                                                                                                               |
|--------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |   |                                                                                                                                                                                                                                          |
| *1.1               |   | Amended and Restated  Dealer Manager Agreement (Exhibit 10.2 to Form 8-K filed on  November 26, 2003)                                                                                                                          |
| *1.2               |   | Form of Selected Dealer  Agreement (Exhibit 10.3 to Form 8-K filed on November 26,  2003)                                                                                                                                      |
| *1.3               |   | Form of Warrant  Purchase Agreement (Exhibit 1.3 to Form S-11 Registration  Statement, Commission File No. 333-86234)                                                                                                          |
| *3.1               |   | Dividend Capital  Trust Inc. Amended and Restated Articles of Incorporation  (Exhibit 3.1 to Form 8-K filed on November 26, 2003)                                                                                         |
| *3.2               |   | Dividend Capital  Trust Inc. Bylaws (Exhibit 3.2 to Form S-11 Registration  Statement, Commission File No. 333-86234)                                                                                                     |
| *10.1              |   | Amended and Restated  Advisory Agreement between Dividend Capital Trust Inc. and Dividend  Capital Advisors LLC dated November 21, 2003 (Exhibit 10.1 to  Form 8-K filed November 26, 2003)                          |
| *10.2              |   | Management Agreement  between Dividend Capital Trust Inc. and Dividend Property Management LLC  dated July 12, 2002 (Exhibit 10.3 to Form S-11 Registration  Statement, Commission File No. 333-86234)               |
| *10.3              |   | Form of Indemnification  Agreement between Dividend Capital Trust Inc. and the officers and  directors of Dividend Capital Trust Inc. (Exhibit 10.4 to Form S-11  Registration Statement, Commission File No. 333-862341) |
| *10.4              |   | Limited Partnership  Agreement of Dividend Capital Operating Partnership LP. (Exhibit 10.5 to  Form S-11 Registration Statement, Commission File No. 333-86234)                                                                     |
| *10.5.1            |   | Dividend Capital  Trust Inc. Employee Stock Option Plan (Exhibit 10.6.1 to Form S-11  Registration Statement, Commission File No. 333-86234)                                                                                   |
| *10.5.2            |   | Dividend Capital  Trust Inc. Independent Director Stock Option Plan (Exhibit 10.6.2 to  Form S-11 Registration Statement, Commission File No. 333-86234)                                                                       |
| +14.1              |   | Code of Ethics                                                                                                                                                                                                                                |
| +23.1              |   | Consent of KPMG LLP,  Independent Auditors, dated March  16, 2004                                                                                                                                                                        |
| +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                                                                                                                                       |
| +32.1              |   | Certificate  of Chief Executive Officer Pursuant to Section 906 of the Sarbanes Oxley  Act of 2002                                                                                                                                       |
| +32.2              |   | Certificate  of Chief Financial Officer Pursuant to Section 906 of the Sarbanes Oxley  Act of 2002                                                                                                                                       |

 

----

| + | Filed  herewith.   |
|---|--------------------|
| * | Previously  filed. |

 

56

----

 

SIGNATURES

 

In accordance withSection 13 or 15(d) of the Exchange Act, the registrant caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

 
|                            | DIVIDEND CAPITAL TRUST  INC.                           |
|---------------------------------|--------------------------------------------------------|
|                            |                                                   |
|                            |                                                   |
|                            | By:                                                    | /s/ Evan H. Zucker |   |
|                            | Evan H. Zucker, Chief  Executive Officer and President |
|                            |                                                   |
| Date:  March 19, 2004 |                                                   |

 

In accordance with theExchange Act, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated.

 
| **Signature**              |   | **Title** |                                                        | **Date** |
|----------------------------|--------|-----------|-------------------------------------------------------------|----------|
|                       |   |      |                                                        |     |
| /s/ Thomas G.  Wattles     |   |      | Chairman and  Director                                      |     | March 19, 2004 |
| Thomas G.  Wattles         |   |      |                                                        |     |
|                       |   |      |                                                        |     |
| /s/ Evan H.  Zucker        |   |      | Chief Executive  Officer, President, Secretary and Director |     | March 19, 2004 |
| Evan H. Zucker             |   |      |                                                        |     |
|                       |   |      |                                                        |     |
| /s/ James R.  Mulvihill    |   |      | Chief Financial  Officer, Treasurer and Director            |     | March 19, 2004 |
| James R.  Mulvihill        |   |      |                                                        |     |
|                       |   |      |                                                        |     |
| /s/ Tripp H.  Hardin       |   |      | Director                                                    |     | March 19, 2004 |
| Tripp H. Hardin            |   |      |                                                        |     |
|                       |   |      |                                                        |     |
| /s/ Robert F.  Masten      |   |      | Director                                                    |     | March 19, 2004 |
| Robert F. Masten           |   |      |                                                        |     |
|                       |   |      |                                                        |     |
| /s/ John C.  O’Keeffe |   |      | Director                                                    |     | March 19, 2004 |
| John C. O’Keeffe      |   |      |                                                        |     |
|                       |   |      |                                                        |     |
| /s/ Lars O.  Soderberg     |   |      | Director                                                    |     | March 19, 2004 |
| Lars O.  Soderberg         |   |      |                                                        |     |
|                            |        |           |                                                             |          |  |  |  |  |  |  |

 

57

----